Microsoft beats sales estimates as Azure growth ticks upward

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Microsoft beat Wall Street estimates for annual revenue and profit yesterday, driven by a slight uptick in expansion in its flagship cloud computing firm since the software maker continued to gain from a worldwide change to operating from home and online learning.

The pandemic has accelerated a move already under way toward cloud-based computing, helping companies like Microsoft, Amazon.com cloud unit and Alphabet Inc's Google Cloud. For Microsoft, it has also boosted demand for its Windows operating systems such as laptops and its Xbox gaming services as families work, play and learn from home, leading to gain that has been about 30% over expectations.

"It was another healthy quarter, with continued demand for remote offerings continuing to power results," Microsoft Chief Financial Officer Amy Hood told journalists at our partner news agency Reuters in an interview.

Revenue growth for Azure, the company's flagship cloud computing firm, was 48 percent, up from 47% in the previous quarter and ahead of Wall Street estimates of 43.45%, according to data statistics out of Visible Alpha. Hood said that the increase was driven by "an increase in larger, long-term Azure contracts."

Microsoft has changed to promoting a lot of its goods via recurring subscriptions, which investors enjoy since it generates stable revenue flows. The value of Microsoft's future recurring revenue contracts with big business customers was flat from the previous quarter and its proportion of one-time deals climbed slightly after two quarters of expansion.

Microsoft bundles together several sets of applications and services such as Office and Azure to a "commercial cloud" metric which investors watch closely to gauge the organization's progress in selling to large companies. Microsoft's industrial Cloud gross margins - a measure of the profitability of its sales to large businesses - was 71 percent, compared with 66% a year earlier.

Hood said a number of the increase was clarified by a change in accounting principles for Microsoft's servers, but the much better margins were driven by sales of lucrative software such as Dynamics 365, which competes with Salesforce.com.

Microsoft said 93 percent of commercial cloud products were sold as subscriptions, compared with 94 percent the quarter before. The organization's remaining performance obligations - a measure of how much revenue has been booked for the long run in sales contracts but not formally recognized as earnings - stayed flat at $107 billion in the fiscal first quarter but was up from $86 billion a year before.

Microsoft said revenue in its own "Intelligent Cloud" segment rose 20% to $13 billion in the first quarter, with 48% increase in Azure. Analysts had expected revenue of $12.7 billion, according to IBES data from Refinitiv.

Revenue from its personal computing division, which includes Windows applications and Xbox gaming consoles, climbed 6% to $11.8 billion.

The organization's revenue rose 12% to $37.2 billion in the quarter ended September the 30th, beating analysts' estimates of $35.72 billion.

"Microsoft's strong earnings beat shows its market share in cloud computing is expanding while its heritage software products like Windows and Office are in fantastic demand throughout the pandemic," said Haris Anwar, senior analyst at Investing.com.

Analysts had expected a gain of $1.54 per share.

Microsoft shares were down 0.2% at $212.77 in after-hours trading following the results, although trading is frequently relatively muted until following Microsoft executives give financial guidance. The business will hold a conference call later on Tuesday.

The team at Platform Executive hope you have enjoyed this news article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Akanksha Rana in Bengaluru, Stephen Nellis in San Francisco and Jane Lee. Editing by Maju Samuel, Peter Henderson and Matthew Lewis.

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