Microsoft Corp. posted another quarter of brisk revenue growth driven by cloud services, underscoring the company’s success in shifting its business towards internet-based computing. The stock rose in early trading.
Profit and sales for the period ended on September 30 exceeded analysts’ estimates, with revenue from Azure cloud-computing services jumping 76 percent. Office 365, the internet- based versions of the company’s productivity applications, saw sales to corporations climb 36 percent.
Chief Executive Officer Satya Nadella has been working to transform the company into a seller of services that let businesses store data and run applications from Microsoft’s data centers, instead of their own in-house machines.
Amazon.com Inc. is the market leader, but booming demand means Microsoft has still been able to carve out a solid business with its Azure cloud services. Redmond, Washington-based Microsoft dominates in the fast-growing market for cloud-based office software, and corporate upgrades to Windows operating systems are keeping that product’s sales growing even as PC sales remain flat.
“What is there that’s not doing well at Microsoft?” said Mark Moerdler, an analyst at Sanford C. Bernstein & Co.
Profit in the fiscal first quarter rose to $8.82 billion, or $1.14 a share, topping the 96-cent average estimate of analysts polled by Bloomberg. Sales climbed 19 percent to $29.1 billion, Microsoft said in a statement, higher than predictions for $27.9 billion.
Microsoft’s shares rose about 2.8 percent. They had declined 5.4 percent to $102.32 in New York amid a late-day market rout. The company’s stock has gained about 20 percent so far this year, but the shares have slipped in recent weeks in line with a broader equity market selloff.
Commercial cloud sales rose 47 percent to $8.5 billion in the quarter, while margins for that business widened by 4 percentage points to 62 percent, the company said in slides on its website.
Microsoft has improved profitability in the division as it adds customers, letting it run services more efficiently and spread costs across more clients. With cloud demand rising, Microsoft has also said it will continue to invest in new products and data centers. As a result, capital expenditures will increase this fiscal year, but at a slower pace than last year, Chief Financial Officer Amy Hood said in an interview.
Microsoft is seeing more large and long-term cloud deals, and more deals that make use of so-called hybrid cloud, where some applications and data stay in a customer’s facilities and some move to Microsoft’s, Hood said. That boosts sales of Windows Server, SQL databases and Azure. Microsoft structures these contracts so customers of the traditional software also get the ability to move to the cloud.
“It’s really customer-friendly,” Hood said. “They can move to Azure on their terms, their timing and at attractive pricing.”
The company is also close to finalising the acquisition of code-sharing website GitHub Inc. for $7.5 billion in stock, a deal aimed at accelerating moves into the cloud and artificial intelligence.
Hood reiterated her previous forecast for that deal to add to profit in fiscal 2020.
Microsoft has been upgrading its cloud software, and has also revamped its sales force to do a better job getting customers to buy. In July 2017, Microsoft laid off thousands of sales workers and starting hiring for different kinds of roles, including some experts in particular industries and product needs. The changes have paid off, Piper Jaffray & Co. analyst Alex Zukin wrote in a recent note to clients.
“Customers even suggest that sales talent has been leveled up,” he wrote, noting that the overhauled sales force is better at selling a group of products that work together, rather than individual programs. In the last few days of the quarter, Microsoft announced a deal with Volkswagen AG to underpin that company’s efforts in connected cars and cloud services.