Microsoft cloud software fuels sales, profit beat

Bloomberg

Microsoft Corp rose to a record after topping quarterly sales and profit projections, fuelled by steady demand for cloud-computing services and a surprisingly strong Windows business. The company’s forecast promised robust growth will continue into next year.
The software maker pledged “double-digit” percentage gains in sales and operating income for the year. Results are getting a boost from larger deals for its Azure web services and brisk adoption of internet-based Office programmes. Given Microsoft’s “strong ambition,” it plans to increase operating expenses by 11 percent to 12 percent for the fiscal year, and will raise capital spending to build out data centres, Chief Financial Officer Amy Hood said.
The shares rose as much as 3.1 percent to $140.67, the highest intraday on record. Several analysts raised their price targets for the stock and Canaccord Genuity described it as “more expensive than it has been since 2000.”
Chief Executive Officer Satya Nadella has centred Microsoft’s strategy on cloud services, seeking to narrow the gap with market leader Amazon.com Inc. As more customers move storage and computing tasks to remote servers owned by Microsoft and upgrade their aging business software, the company has been leveraging its broad product line by getting them to sign up for both Azure and newer products like Microsoft 365 — a subscription package of Office 365 cloud software, Windows 10 and security programmes.
“Everything has been going well for them,” said Sid Parakh, a portfolio manager at Becker Capital Management, which counts Microsoft as its biggest holding. “It’s the structural winner right now — as more and more companies move to the cloud, it’s largely Amazon and Microsoft in the running for those deals.”
Profit before certain items in the fourth quarter, which ended on June 30, rose to $1.37 a share, compared with the $1.22 average forecast of analysts polled by Bloomberg.
Revenue increased 12 percent to $33.7 billion, the Redmond, Washington-based company said in a statement, compared with the $32.8 billion projection. Net income in the quarter was $13.2 billion, or $1.71 a share.
The stock has jumped this year on optimism about the company’s cloud business, and on some investors’ belief that Microsoft is a safe haven as US and European regulators sharpen their scrutiny of other large technology firms.
The gains have made Microsoft the most-valuable public company, with a market capitalisation of more than $1 trillion.
“Microsoft is brimming with confidence in cloud growth on the heels of Azure and Office 365 success,” said Dan Ives, an analyst at Wedbush Securities.
“The Street will be loudly applauding this forecast.”