| | | Microsoft's Cloud Strategy Pays Off
DOW JONES & COMPANY, INC. 6:08 PM ET 10/24/2018
Symbol Last Price Change | MSFT | 102.32 | -5.78 (-5.35%) | | QUOTES AS OF 04:00:00 PM ET 10/24/2018 |
Microsoft Corp.'s (MSFT) cloud service is decelerating, but the company is making up for it through an offshoot of the business that mixes in its software sales, a key strategy for competing with market leader Amazon.com Inc.
That strategy, called hybrid computing, in which customers run some software in their own data centers but also use cloud services, fueled a 28% jump in Microsoft's(MSFT) server products and cloud-services revenue in its fiscal first quarter.
The cloud-computing business, called Azure, grew 76%--still healthy but the slowest pace of growth since Microsoft(MSFT) began regularly disclosing the percentage gains about three years ago. Microsoft(MSFT) doesn't disclose revenue figures for the business, but Stifel Nicolaus & Co. analyst Brad Reback estimated Azure revenue totaled $2.69 billion for the quarter.
Azure's size makes it difficult to maintain past growth rates, finance chief Amy Hood said in an interview Wednesday. "This is still a big business, and it's still growing very quickly," she said.
By comparison, Amazon's market-leading cloud-infrastructure business grew 49% in its previous quarter to $6.11 billion.
Microsoft's (MSFT) Intelligent Cloud segment, which includes Azure and server products, grew 24% to $8.57 billion, about $ 300 million above analysts' expectations. "This absolutely shows Microsoft's(MSFT) hybrid-cloud strength," Mr. Reback said.
Overall, revenue rose 19% to $29.08 billion.
Net income grew 34% to $8.82 billion. On a per-share basis, the company reported profit of $1.14. Analysts had expected 96 cents in per-share earnings on $27.92 billion in revenue.
Microsoft (MSFT) stock, down 5.4% to $102.32 at the market's close Wednesday, gained nearly 3% after hours as revenue and profit easily topped Wall Street's forecasts.
One of the biggest areas of growth came from Microsoft's(MSFT) gaming business, where revenue jumped 44%. Ms. Hood singled out the massive hit game "Fortnite" for driving that performance. Xbox software and services revenue jumped 36% -- about half coming from "Fortnite," she said.
Microsoft (MSFT) saw little fallout from the chip shortages longtime partner Intel Corp. disclosed last month as it struggled to meet the demand for PCs. Intel has worked to keep chips available for costly computers that often run the most-expensive versions of Windows, and that has helped keep revenue high, Ms. Hood said.
Revenue in the More Personal Computing segment, which includes Windows and Xbox, increased 15% to $10.75 billion. The Productivity and Business Processes segment, which includes the Office productivity franchise, gained 19% to $9.77 billion.
The performances of Azure and Office have fueled Microsoft's(MSFT) return to the shortlist of highest-valued U.S. public companies. Its shares have climbed about 19% in 2018, and its market capitalization of $785.56 billion trails only Apple Corp. and Amazon.
Write to Jay Greene at Jay.Greene@wsj.com |
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