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Microsoft revenue floats higher on cloud platform

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Via Financial Times

An acceleration in growth for Microsoft’s cloud business pushed revenues well ahead of expectations in the final quarter of last year, adding $50bn to its market value in after-market trading on Wednesday. 

The world’s biggest software company also reported unexpectedly strong demand for its traditional on-premise software, as well as an improvement in profitability that belied its growing reliance on the cloud, which had been expected to eat into margins.

The latest quarter showed “incredible resilience” across Microsoft’s business, said Brent Thill, an analyst at Jefferies. “The old model and the new model, both are working together. They just keep performing.”

Microsoft’s shares were up 4 per cent in after-market trading, at $175.60. The shares are up nearly fivefold since Satya Nadella took over as chief executive in early 2014 and set about making the cloud the centre of the company’s focus.

Microsoft gave an extra boost to the market as it forecast revenue of $34.1bn to $34.9bn in the current quarter, compared with Wall Street expectations of $34.14bn, and predicted a 2 percentage point improvement in operating margins in its current fiscal year.

The latest surge lifted cloud revenue to more than a third of Microsoft’s overall business for the first time. Mr Nadella said the company was seeing the benefit in particular from selling both cloud services and software for companies to run on their own premises — a combination known as “hybrid cloud”.

A third of commercial software customers are now using some aspect of the Azure cloud platform, added Amy Hook, chief financial officer. That was boosting margins as well as growth, she said, since it lifts the sale of higher priced, premium versions of the company’s software.

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Microsoft’s wider range of technology has given it a marketing edge over Amazon Web Services, the cloud market leader. However, despite its impressive recent performance it was “still a lap behind” AWS and “hasn’t made a dent” in its bigger rival’s cloud dominance, said Mr Thill.

For the latest quarter, commercial cloud revenue — the main measure of Microsoft’s cloud business — rose 39 per cent to $12.5bn, an acceleration from the 36 per cent growth of the preceding quarter. Underpinning the performance was faster growth in the Azure service. Microsoft does not disclose the level of Azure’s revenues, but said they had grown by 62 per cent, up from 59 per cent in the preceding three months.

Microsoft also benefited from a 2 per cent increase in sales from its Windows PC division, to $13.2bn. That followed the end of support for Windows 7, which has prompted customers to upgrade to Windows 10 PCs, reflected in an 18 per cent increase in sales of Windows to computer makers.

Overall, Microsoft reported a 14 per cent advance in revenue, to $36.9bn, with earnings per share of $1.51, up from $1.08 the year before. Analysts had been expecting revenue of $35.7bn on earnings of $1.34 per share.

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