Microsoft Fiscal Results Point To Sweet Success In The Cloud

Latest financials please Wall Street, prompting Redmond shares to hit new high after strong cloud performance

Microsoft’s latest financials have been buoyed by its strong cloud performance, which in turn drove its share price to levels not seen since the peak of the tech stock bubble in 1999.

The strong cloud performance comes as Microsoft continues to focus on enterprise cloud offerings, at the expense of its PC and mobile plays.

Mixed Results

Microsoft’s first quarter 2017 financials beat Wall Street expectations and shares in the company rose 6.2 percent to a new high of $60.79 (£49.78) in after-hours trading, all of which nearly added approximately $25 billion (£20.5bn) to its market value.

But there was no disguising that Redmond’s latest financials were a mixed lot.

For the three months ended 30 September, Microsoft posted net income of $4.7 billion (£3.8bn), down from $4.9 billion (£4bn) in the same year-ago quarter.

Revenues rose modestly to $20.4 billion (£16.7bn) from $20.37 billion (£16.6bn) a year earlier.

CEO Satya Nadella

“We are helping to lead a profound digital transformation for customers, infusing intelligence across all of our platforms and experiences,” said CEO Satya Nadella. “We continue to innovate, grow engagement, and build our total addressable market.”

While on the surface the financials don’t seem to be overly positive, with a drop in profit and a modest increase in sales, a little drilling down reveals that Redmond is executing well with its cloud-based business and other divisions.

Revenue from the Intelligent Cloud grew eight percent. This was helped by 11 percent increase in server products and cloud services revenue. But perhaps the highlight was the 116 percent rise in Azure revenue, as Azure compute usage more than doubled year-over-year.

Meanwhile Office consumer products and cloud services revenue grew eight percent and Office 365 consumer subscribers increased to 24.0 million. Office commercial products and cloud services revenue also grew by five percent.

Phone Decline

But these strong performances were tempered by Microsoft’s struggles in what were once its core markets.

Revenue in Personal Computing declined two percent to $9.3 billion (£7.6bn). Digging deeper it seems that Windows OEM revenue was flat year-over-year, as were Windows commercial products and cloud services revenue.

Perhaps unsurprisingly given Microsoft’s retreat from the phone market, its phone revenue declined an eye watering 72 percent. Gaming revenue also declined five percent.

Meanwhile search advertising revenue grew nine percent thanks to increased revenue per search and search volume.

Microsoft also said it expects to close the LinkedIn acquisition and the sale of its feature phone business in the second quarter of fiscal year 2017.

Rival Salesforce last month urged European authorities to conduct an antitrust probe of Microsoft, arguing that the LinkedIn deal threatens competition and innovation.

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