Microsoft on Thursday reported quarterly profit of $13.2 billion, powered in large part by a steadily growing cloud computing business that the company says now accounts for almost a third of its total revenue.
CEO Satya Nadella even said in a call with investors that “our commercial cloud business is the largest in the world,” although that’s only true if you use Microsoft’s unique definition. The company counts its widely-used office software and similar online services as part of its overall cloud business. That’s in addition to cloud infrastructure such as data centers and servers, where Amazon is the market leader.
“It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry,” Nadella noted in a statement.
“Every day we work alongside our customers to help them build their own digital capability – innovating with them, creating new businesses with them, and earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.”
Microsoft said it had net income of $1.71 per share in the fiscal fourth quarter, which ended June 30. Earnings, adjusted for non-recurring gains, were $1.37 per share.
The results exceeded Wall Street expectations. The average estimate of 14 analysts surveyed by Zacks Investment Research was for earnings of $1.21 per share.
The increase in net income was 49% but was affected by a one-time tax benefit of $2.6 billion from transferring some properties from foreign subsidiaries to the U.S. and Ireland. The software maker also surpassed forecasts by posting revenue of $33.7 billion in the period, a 12% increase over the same time last year. Eleven analysts surveyed by Zacks expected $32.7 billion.
The company’s fastest-growing segment was what it calls the “intelligent cloud,” which includes server products and its Azure cloud computing platform. The segment’s revenue was $11.4 billion, up 19% from a year ago.
“We are building Azure as the world’s computer, addressing customers’ real-world operational sovereignty and regulatory needs. We have 54 data center regions, more than any other cloud provider, and we were the first in the Middle East and in Africa,” Nadella said in a conference call.
“Azure is the only cloud that extends to the edge – spanning identity, management, security and infrastructure. This year, we introduced new cloud-to-edge services and devices – from Azure Data Box Edge, to Azure Stack HCI, to Azure Kinect – bringing the full power of Azure to where data is generated. Azure Sphere is a first-of-a-kind edge solution to secure the more than nine billion MCU-powered endpoints coming online each year. And now IoT Plug and Play seamlessly connects IoT devices to the cloud without having to write a single line of embedded code.
“Azure is the most open cloud, and this quarter we expanded our partnerships with Oracle, Red Hat and VMware to make the technologies and tools customers already have first-class on Azure.”
Synergy Research Group analyst John Dinsdale says Microsoft is still a long away behind Amazon but well ahead of the rest of the pack as a provider of cloud infrastructure services. Microsoft has been gradually gaining share in that market, rising from 6% in 2016 to 16% in the first quarter of this year, he said.
But in the “commercial cloud” as defined by Microsoft, the company said Thursday that cloud business sales accounted for 30% of Microsoft’s $125.8 billion in total revenue over the past year, up from 24% the previous year.
Nadella said it was a record fiscal year as a result of “our deep partnerships with leading companies in every industry.”
In its latest corporate deal, the company announced this week that it’s partnering with AT&T to migrate some of AT&T’s “non-network infrastructure” onto Microsoft’s cloud platform. Nadella described it Thursday as a “very significant deal” and the largest of its kind that the company has signed.
Nadella said this was also a “breakout year” for Microsoft Teams, the tech giant’s effort to build a platform for workplace chatting and collaboration to compete with upstart Slack.
Microsoft last week revealed its Teams metrics for the first time, showing it has 13 million daily active users, which is more than the 10 million users that Slack reported earlier this year. Microsoft benefits from being able to bundle Teams as part of a software package that includes email and other products. That eliminates “the need for discrete apps” that can expose a company’s security, Nadella said.