Microsoft tops $1 trillion as it predicts more cloud growth

Microsoft shares rose 4.4 per cent to $130.54 in late trading after the forecast issued on a conference call with investors, pushing the company ahead of Apple’s $980 billion market capitalisation. The companies and Amazon.com have taken turns in recent months to rank as the world’s most valuable US-listed company.Microsoft’s stock has gained about 23 per cent gain so far this year, after hitting a record high of $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 per cent in the third quarter ended March 31 from 76 per cent 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 $13.5 billion in sales in fiscal 2019 with an overall growth rate of 75 per cent, he estimated. “I can’t name another company of that scale growing at these rates.”

Microsoft’s earnings per share of $1.14 beat expectations of $1 according to IBES data from Refinitiv.Windows licensing revenue from computer makers grew 9 per cent year over year, beating expectations after a 5 per cent 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 – which includes business use of Azure, Office 365 and LinkedIn – was $9.6 billion this quarter, up 41 per cent from the previous year but down slightly from the 48 per cent growth rate the previous quarter.

Microsoft’s so-called “intelligent cloud” unit, which contains its Azure services, posted revenue of $9.65 billion, above Wall Street estimates of $9.28 billion, according to IBES data from Refinitiv. Chief financial officer Amy Hood said that unit could reach $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 $10.2 billion revenue versus expectations of $10.05 billion.

Microsoft’s latest results contained two weak spots.

Its gaming revenue was up only 5 per cent versus 8 per cent 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 per cent versus 39 per cent the quarter before, also because customers waited for updated hardware they expected to be released soon.

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

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