Microsoft Beats Analysts' Expectations as Cloud Revenue Jumps

Microsoft Corp., in its second year under Satya Nadella, reported profit that exceeded analysts’ estimates as growth in cloud software sales and more expensive versions of server programs made up for slowing demand for personal-computer products.

Profit, excluding costs related to restructuring and integration, was 62 cents a share on sales of $21.7 billion in the fiscal third quarter ended March 31, the company said Thursday in a statement. Analysts had estimated 53 cents on sales of $21.1 billion, according to data compiled by Bloomberg.

Nadella has been shifting strategy at the world’s largest software maker to focus on cloud and mobile software, including products that work with rival’s offerings. While cloud revenue is growing, a cycle in which companies upgraded computers has run out of steam and Microsoft’s overseas sales have been hurt by a strong dollar and geopolitical concerns in China and Russia.

“They’ve got a growing cloud number that isn’t stopping,” said Mark Moerdler, an analyst with Sanford C. Bernstein & Co. who rates the shares the equivalent of a buy.

Net income fell to $4.99 billion, or 61 cents a share, from $5.66 billion, or 68 cents, a year earlier.

Microsoft rose as much as 3.9 percent in extended trading after closing at $43.34. The shares fell 12 percent in the quarter, while the S&P’s 500 Index rose less than 1 percent in the period.

Cloud Products

Under Nadella, Microsoft has released new services for the company’s Azure and Office 365 cloud programs and brought out versions of its mobile applications for Apple Inc.’s and Google Inc.’s systems.

Microsoft reported that commercial cloud revenue more than doubled for the seventh quarter in a row. Sales in the commercial unit that includes cloud programs was $2.76 billion, compared with a $2.66 billion average estimate of analysts.

Sales of server products and services increased 12 percent with a 25 percent rise in the priciest versions of products such as Windows Server and the SQL database server.

“As our products have improved and you add value at the high end, customers move to the high end,” Chief Financial Officer Amy Hood said in an interview.

The results eased investor concerns raised by a shortfall in the previous quarter.

Bounce Back

“The company beat across the board after a jaw dropper last quarter,” said Daniel Ives, an analyst at FBR Capital Markets & Co. in New York. “Despite PC headwinds, the company is doing a good job stabilizing the ship on the Windows front while cloud continues to be a major pillar of strength.”

Still difficulties that began last year with a strong U.S. dollar, weaker sales in Japan and geopolitical concerns in Russia and China will continue in the current quarter, Hood said.

With investor and analyst expectations at a “very negative” level, the company managed to surprise, Ives said.

Revenue in the Commercial Licensing division, which includes copies of Windows and Office sold to corporate customers were $10 billion. That compares with a $9.78 billion estimate of analysts polled by Bloomberg.

Sales of Windows to PC makers to install on their machines dropped 19 percent for the Pro version and 26 percent for other versions.

Device and Consumer Licensing sales, which include consumer versions of Windows, were $3.48 billion. Analysts had expected $3.45 billion.

Video Games

Devices and Consumer Other, which is made up of products including video games and Internet advertising, was $2.28 billion, while analysts had expected $2.03 billion. That area benefited from a 21 percent increase in Internet search advertising. Microsoft remains committed to profitability for its Bing search engine next fiscal year, said Hood.

Unearned revenue, a measure of future sales, was $20.2 billion, compared with the $20.95 billion average estimate of four analysts surveyed by Bloomberg.

The currency fluctuations crimped Microsoft’s sales as they have for other U.S. technology companies. The Bloomberg Dollar Spot Index, which tracks the U.S. dollar against 10 major peers, gained about 17 percent over the past 12 months. Microsoft said quarterly revenue, which increased 6 percent from a year earlier, would have increased 9 percent excluding the effect of currency rates.

Mobile app development

Mobile’s strategy is the key to any business success in todays digital world. Pixotri technologies works one-on-one with businesses and individual product lines to develop a comprehensive mobile presence that complements your existing brand identity while building out your mobile brand. Contact us for your mobile app development requirements.email- info@pixotritechnologies.com. Visit our website: www.pixotritechnologies.com

https://www.youtube.com/watch?v=T9xSWDsTYC8