Microsoft edges toward US$1 trillion valuation on results beat

Microsoft Corp saw its shares rise in market trades on Thursday, briefly pushing its valuation across US$1 trillion before pulling back slightly. (Bloomberg pic) 

SEATTLE: Microsoft Corp’s cloud computing business fueled quarterly sales and profit that topped analysts’ estimates, boosted by several new deals with large corporate clients.

The company’s shares rose as much as 5.1% Thursday morning in New York, briefly pushing its valuation across US$1 trillion before pulling back slightly.

The move nosed the software maker ahead of Apple Inc as the world’s most valuable company.

The two tech giants, along with Amazon.com Inc, are all within striking distance of the symbolic US$1 trillion mark as their stocks have rallied this year.

Revenue rose 14%  from a year earlier to US$30.6 billion in the quarter ended March 31, the Redmond, Washington-based company said Wednesday in a statement.

Analysts on average projected US$29.9 billion. Net income was US$8.8 billion, or US$1.14 a share, compared with an average analyst estimate of US$1 a share, according to data compiled by Bloomberg.

The fiscal third quarter featured a flurry of large brands, particularly in retail, signing agreements to use Microsoft’s Azure cloud software.

Clients included grocer Kroger Co, Walgreens Boots Alliance Inc and oil company Exxon Mobile Corp. Some, such as Walgreens, also committed to using cloud-based Office and security software.

The deals reflect chief executive officer Satya Nadella’s efforts to draw some customers away from cloud market leader Amazon.com Inc and ink more significant clients.

Microsoft also is benefiting as more traditional companies that are longtime customers move to the cloud.

Azure cloud-services revenue rose 73%, slower than the 76% Microsoft posted in the fiscal second quarter.

Some investors have been concerned that while Azure is still growing rapidly, those increases have slowed from the past when doubling was a regular occurrence. Sales of Office cloud software to business customers rose 30%.

“The Azure growth blew away Street expectations,” said Dan Ives, an analyst at Wedbush Securities. “This was an A+ quarter across the board for Redmond.”

Commercial cloud revenue, a measure of sales from Azure, internet-based versions of Office software and some smaller products, rose 41% in the period from a year earlier to US$9.6 billion. Profit margins for the business widened to 63%.

“The strength of our commercial clouds continued to boost’’ the company overall, Microsoft chief financial officer Amy Hood said in an interview. “We saw demand for Azure across all of our geographic regions and among companies of all sizes,’’ including BMW AG and Renault-Nissan, she said.

Worldwide public-cloud services sales are expected to grow 17.5% this year to US$214.3 billion, according to Gartner Inc.

Software and cloud company stocks recovered in the first four months of 2019, with Facebook Inc, Apple, Alphabet Inc and Amazon all up this year, after a roller coaster end to 2018 that saw shares drop amid concerns spending might be declining.

While the PC market declined in the first quarter, corporate machines were a “bright spot,” Gartner said. That helps Microsoft, which generally sells business customers a pricier version of Windows and has many of its corporate clients on a regular license for updates.

Microsoft said revenue for the Surface line of devices rose 21% from a year earlier to US$1.3 billion.

Sales of Intelligent Cloud products, comprised of Azure and server software, will be US$10.9 billion to US$11.1 billion in the current quarter, Hood said on a conference call.

The division’s revenue rose 22% to US$9.65 billion in the fiscal third quarter, above the US$9.3 billion average estimate of seven analysts polled by Bloomberg.

Microsoft sees its productivity and business processes unit, mostly Office software, reaching revenue of US$10.6 billion to US$10.8 billion in the fiscal fourth quarter, Hood said.

The division’s sales rose 14%  from a year earlier to US$10.2 billion in the period ended March 31. That compared with an analyst average estimate of US$10 billion.

More Personal Computing unit sales, including Windows and Xbox products, will grow to US$10.8 billion to US$11.1 billion in the current quarter, Hood said.

The unit rose 8% to US$10.7 billion in the fiscal third quarter. Analysts projected US$10.5 billion on average.

Hood said Microsoft expects to spend US$10.7 billion to US$10.8 billion on operating expenses in the current period, and it will increase capital expenditures to continue expanding its cloud presence.