Microsoft Delivers Strong Azure Results, But Revenues Weak Overall As Growth Slows

Microsoft delivered sturdy cloud services growth in its third quarter earnings today, while building on the success of 2015’s Windows 10 release.

However, revenue and earnings disappointed, with shares falling on the announcement of $3.8bn (£2.65bn) earnings. Cloud growth also slowed somewhat. Microsoft said Azure grew 120 percent during the third quarter, down from 140 percent the previous quarter.

Cloud

Microsoft said on Wednesday that its cloud is hitting an annualised run rate ‘exceeding’ $10bn (£7bn).

Microsoft’s cloud platform Azure is one of the mainstays in CEO Satya Nadella’s growth strategy, where the cloud platform is fighting fiercely with rivals Google and Amazon Web Services (AWS).

Azure’s revenue, reported under Microsoft’s ‘Intelligent Cloud’ division, grew 120 percent in constant currency, with usage of Azure compute and Azure SQL database more than doubling year-over-year.

Total revenue in Intelligent Cloud grew 3 percent to $6.1bn (£4.3bn), analysts had expected revenue of $6.28bn (£4.4bn).

“Organisations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” said Satya Nadella, Microsoft CEO. “As these organisations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.”

Microsoft’s quarterly sales stood at $20.5bn (£14.3bn). Revenues hit $22.1bn (£15.4bn).

Windows 10

Windows 10 has been one of the company’s fastest growing operating systems, and Nadella claims it is now installed on more than 270 million devices.

Microsoft’s personal computing revenue grew just 3 percent, up to $9.5 billion (£6.6bn), with Windows computer revenue falling 2 percent. Microsoft has been hit hard by the global fall of PC shipments, with IDC analysts pointing to a dive of 11.5 percent year-on-year in the first quarter of 2016.

Redmond’s Surface revenue did grow 61 percent however, driven by Surface Pro 4 and Surface Book sales. Phone revenue dived 46 percent.

Amy Hood, Microsoft’s chief financial officer, said her company’s operational and financial discipline helped drive a solid quarter.

“We remain focused on investing in our strategic priorities to drive long-term growth,” she said.

Revenue in Microsoft’s Productivity and Business Processes unit grew one percent to $6.5bn (£4.5bn). Office 365 saw a revenue growth of 63 percent.

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