Date
22 May 2019
Microsoft has spent the past five years shifting from reliance on its once-dominant Windows operating system to selling cloud-based services. Photo: Reuters
Microsoft has spent the past five years shifting from reliance on its once-dominant Windows operating system to selling cloud-based services. Photo: Reuters

Microsoft tops US$1 trillion valuation, sees more cloud growth

Microsoft Corp briefly topped US$1 trillion in value for the first time after executives predicted continued growth for its cloud computing business, Reuters reports.

The Redmond, Washington-based company beat Wall Street estimates for quarterly profit and revenue, powered by an unexpected boost in Windows revenue and brisk growth in its cloud business which has reached tens of billions of dollars in sales.

Microsoft shares rose 4.4 percent to US$130.54 in late trading after the forecast issued on a conference call with investors, pushing the company ahead of Apple Inc’s US$980 billion market capitalization.

The companies and Amazon.com Inc have taken turns in recent months to rank as the world’s most valuable US-listed company.

Microsoft’s stock has gained about 23 percent so far this year, after hitting a record high of US$125.85 during regular trading hours.

Under chief executive Satya Nadella, the company has spent the past five years shifting from reliance on its once-dominant Windows operating system to selling cloud-based services.

Azure, Microsoft’s flagship cloud product, competes with market leader Amazon Web Services (AWS) to provide computing power to businesses.

Growth in that unit slowed to 73 percent in the third quarter ended March 31 from 76 percent in the second quarter. Mike Spencer, Microsoft’s head of investor relations, said the decline was roughly in line with the company’s estimate.

Christopher Eberle, a senior equity analyst with Nomura, said that with Azure, “one should assume a slower rate of growth as we move forward, simply due to the law of large numbers”.

Still, Azure will bring in US$13.5 billion in sales in fiscal 2019 with an overall growth rate of 75 percent, he estimated. “I can’t name another company of that scale growing at these rates.”

Microsoft tops tech rivals such as Amazon in market capitalization on some days despite having less revenue, partly because most of its sales are to businesses, which tend to be steadier customers than consumers.

A growing proportion of Microsoft’s software sales are billed as recurring subscription purchases, which are more reliable than one-time purchases.

Microsoft’s earnings per share of US$1.14 beat expectations of US$1 according to IBES data from Refinitiv.

Windows licensing revenue from computer makers grew 9 percent year over year, beating expectations after a 5 percent decline in the previous quarter.

Spencer said a shortage of Intel Corp processor chips for PCs that many analysts expected to last into this summer had been resolved earlier than expected, allowing PC makers to ship more machines. 

Microsoft’s “commercial cloud” revenue – including business use of Azure, Office 365 and LinkedIn was US$9.6 billion this quarter, up 41 percent from the previous year but down slightly from the 48 percent growth rate the previous quarter.

Microsoft’s so-called “intelligent cloud” unit, which contains its Azure services, posted revenue of US$9.65 billion, above Wall Street estimates of US$9.28 billion, according to IBES data from Refinitiv.

Chief financial officer Amy Hood said that unit could reach US$11.05 billion in revenue in the fiscal fourth quarter.

The “productivity and business process” unit that includes both Office as well as social network LinkedIn had US$10.2 billion revenue versus expectations of US$10.05 billion.

Microsoft’s latest results contained two weak spots.

Its gaming revenue was up only 5 percent versus 8 percent the quarter before, which Spencer attributed to less revenue from third-party game developers and the fact that many gamers are delaying purchases of Microsoft’s Xbox console because a new model is expected soon.

Sales of the company’s Surface hardware grew 21 percent versus 39 percent the quarter before, also because customers waited for updated hardware they expected to be released soon.

Total revenue rose 14 percent to US$30.57 billion, beating analysts’ average estimate of US$29.84 billion according to IBES data from Refinitiv.

Net income rose to US$8.81 billion, or US$1.15 per share, from US$7.42 billion, or 96 cents per share, a year earlier.

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CG

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