Microsoft Cloud Push Gains Ground on Azure, Office 365

Posted October 27, 2017

Shares of Microsoft Corporation (NASDAQ: MSFT) were volatile in Thursday's after-hours session, following the announcement of the company's FY2018 first-quarter financial results.

More than three years ago, Microsoft promised to reach an annualized revenue of $20 billion in its corporate cloud business by the end of its 2018 fiscal year (ending in June 2018).

Microsoft Corp reported a better-than-expected quarterly profit on Thursday as demand for its cloud computing services for companies rose and its personal computer software business stabilized. See the full release here.

In fiscal 2017, this segment fell 4%, reporting ~$38.8 billion in revenues and contributing 43% to overall revenues. Productivity revenue, mainly Office software, climbed 28 percent to $8.2 billion.

Under Satya Nadella, Microsoft has been transforming itself and focusing more on cloud-based services as PC shipments continue to drop.

Intelligent Cloud: This segment, which includes results from server products and services (including Windows Server and Azure), grew 14 percent to $6.9 billion. But the big number as always was Azure revenue, which grew 90 percent. Office products were also a highlight of the quarter, with commercial Office and consumer Office revenues up by 10 percent and 12 percent, respectively. In advertising, Microsoft reported a 15 percent revenue increase - excluding traffic acquisition costs - which the report says is driven by higher revenue per search and search volume. Revenues in More Personal Computing segment, which includes Windows operating system, was relatively unchanged at $9.4 billion. As for the Xbox division, revenue increased by only 1 percent, Xbox software and services revenue growth saw an increase of 21 percent offset by lower hardware revenue.

Azure's strong performance helped lift the gross margin at Microsoft's cloud business to 57 per cent, said Stephanie Rodriguez, director of investor relations for Microsoft. Profit for the quarter climbed to $6.6 billion from $5.7 billion in the first quarter previous year.

Wall Street was expecting Microsoft to report first quarter earnings of 72 cents a share on revenue of $23.56 billion.