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By Aaron Tilley
Microsoft Corp. posted higher quarterly earnings on record sales, driven by continued strong growth in its cloud-computing business.
The software giant Wednesday reported fiscal second-quarter earnings per share of $1.51, up from $1.08 for the same period last year. Analysts surveyed by FactSet had expected earnings per share of $1.32. Revenue rose 14% to $36.91 billion, beating analysts' expectations of $35.67 billion.
Microsoft has enjoyed a period of earnings growth under Chief Executive Satya Nadella, who has bolstered the company's cloud-computing business that enables customers to rent rather than buy data storage and processing. The company has become the No. 2 provider of cloud-computing services behind Amazon.com Inc.
"We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers' success," said Mr. Nadella.
Microsoft's intelligent cloud unit, which includes its Azure cloud services, had sales of $11.87 billion, up 27% from the year-ago period and exceeding analysts' expectations of $11.4 billion, according to FactSet.
In October, Microsoft beat out Amazon to provide cloud-services to the Pentagon. The deal is valued at up to $10 billion over the next decade, the Pentagon has said. Amazon is protesting the decision to award the contract to Microsoft.
The Redmond, Wash.-based company has spent heavily to bolster its cloud business and narrow the gap with Amazon, which still has a dominant market share. Microsoft has also benefited from increasing cloud profit margins, bolstering its financial results.
Azure sales increased 62% in the second quarter from a year ago, a faster pace than the 59% year-over-year rise in the first quarter.
Azure growth is "confirmation that they're continuing to take market share while offering more efficiency as they take market share," said Alex Zukin, an analyst at RBC Capital Markets. "They're growing at twice the rate that AWS [Amazon Web Services] is growing."
Microsoft's shares, which have risen 63% over the past year, were up nearly 3% in after-hours trading.
The division that includes the legacy Windows personal-computer operating system business, the Xbox gaming business and Surface hardware also surprised Wall Street as the company had forecast for sales to be down as much as 3% from the second quarter last year. Instead, sales increased 1.7% to $13.21 billion, helped by stronger Windows operating system installs.
"We don't think we'll see sustainable growth with Windows, but we also don't think a cliff is coming," Jonathan Neilson, a finance director with investor relations at Microsoft. "The underlying demand is there."
Microsoft this month ended support of Windows 7 software. That deadline helped drive PC sales in recent months as customers such as large enterprises bought devices featuring the newer Windows 10 operating system.
Microsoft's productivity and business-process division, which includes LinkedIn and commercial subscriptions to the Office 365 product suite, had $11.83 billion in sales, up 17% from the same quarter a year ago. Analysts were expecting sales of $11.43 billion for the quarter.
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(END) Dow Jones Newswires
January 29, 2020 17:51 ET (22:51 GMT)
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