By Jay Greene 

Microsoft Corp.'s cloud computing businesses kicked into high gear as sales of the software giant's Azure service more than doubled.

Overall revenue, which has slid for each of the past five quarters, also grew in the period. The Redmond, Wash., company beat analyst expectations for both sales and profit in the first quarter, which sparked a 6% rise in its share price to $60.77 in after-hours trading.

If Microsoft shares trade that high on Friday, the price will surpass the company's all-time high of $59.56 during the dot-com boom in 1999.

Microsoft ranks second in selling computing power and data storage capacity on demand over the internet. Amazon.com Inc., which pioneered the business, has a huge lead with 31% of the market, according to a recent survey from Synergy Research Group. But with an 11% share of the market for what is known as infrastructure as a service, Microsoft Azure is Amazon Web Services' stiffest competition.

Microsoft is capitalizing on massive investments it has made building data centers around the globe to handle its cloud-computing traffic. The company spent $2.3 billion in capital expenditures in the first quarter.

"A lot of the investments they made in capital expenditures are paying off this quarter and should only accelerate," said Stifel Nicolaus & Co. analyst Brad Reback.

Moreover, Microsoft posted 49% gross margins in the businesses it lumps together under the heading commercial cloud -- not a reporting segment -- which includes Azure as well as the cloud-based Office 365 productivity suite and Dynamics software for sales professionals. Mr. Reback said this shows the company can generate sizable profits in the cloud despite declines in the lucrative business of licensing software that customers install on computers on their own premises.

The company is taking advantage of the wave of digital technology washing over mainstream businesses, said Microsoft Chief Executive Satya Nadella. "It's not just the Silicon Valley startups anymore, it is the core enterprise that is also becoming a digital company," Mr. Nadella said during a Thursday conference call with analysts. "And we are well positioned to serve them and that's good to see."

Revenue from Azure grew 116%, or 121% in constant currency, the company said. Chief Financial Officer Amy Hood noted that use of Azure's compute service more than doubled as well.

Microsoft posted big gains in the reporting segment it calls productivity and business processes, which includes both online and on-premises versions of Office and Dynamics. There, sales climbed 6% to $6.7 billion. In constant currency, revenue grew 8%. Revenue from commercial sales of the cloud-based Office 365 jumped 51%, or 54% in constant currency.

And Dynamics revenue grew 11%, or 13% in constant currency, driven by online revenue growth, the company said.

Even Microsoft's Windows business, which has shrunk over the years, showed surprising vigor. Windows revenue from computer makers was flat in the quarter, but that beat the world-wide PC market as a whole, which slid 3.9% in the quarter that ended in September, according to International Data Corp.

For the quarter, revenue from the segment known as more personal computing, which includes Windows, as well as Microsoft's mobile phone and gaming businesses, fell 2% to $9.3 billion, a 1% decline in constant currency.

Microsoft posted $4.69 billion in first-quarter net income, or 60 cents a share, compared with a $4.9 billion profit, or 61 cents a share, a year ago.

Excluding the impact of revenue deferrals and restructuring charges, adjusted earnings were 76 cents. Revenue rose 0.4% to $20.45 billion and was $22.33 billion on an adjusted basis.

Analysts surveyed by Thomson Reuters expected Microsoft to report adjusted earnings per share of 68 cents on sales of $21.7 billion.

Write to Jay Greene at Jay.Greene@wsj.com

 

(END) Dow Jones Newswires

October 20, 2016 19:23 ET (23:23 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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