Microsoft Value Hits $1 Trillion After Cloud Growth

Microsoft has pleased investors after its third quarter results beat Wall Street expectations, which helped it briefly reach $1 trillion (£774 billion) in value for the first time.

Profits and revenue continued to rise, thanks in part an unexpected surge in Windows revenues and continued growth of its Azure cloud business.

Microsoft is currently locked into a fierce battle with Amazon Web Services to win a Pentagon cloud contract worth up to $10 billion (£7.7bn).

Strong results

Microsoft’s strong financial showing comes after the firm disappointed investors earlier this year when it reported a growth slowdown in its Azure Cloud, despite relatively solid financial results.

But there was little disapointment this time around. For the third quarter ending 31 March, Microsoft posted a net profit of $8.8bn compared to $7.4bn in the same year-ago quarter.

Microsoft’s earnings per share of $1.14 beat expectations of $1.

Revenues meanwhile rose 14 percent to $30.6bn from $26.8bn a year ago. Analysts had been expecting $29.84bn.

And the good news kept on coming when Microsoft management reportedly predicted continued growth for its cloud computing business.

This pushed Redmond’s shares up 4.4 percent to $130.54 in late trading, meaning that Microsoft has joined both Apple and Amazon at becoming worth (albeit briefly) more than $1 trillion in value.

“Leading organisations of every size in every industry trust the Microsoft cloud,” said CEO Satya Nadella. “We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow.”

Divisional performance

“Demand for our cloud offerings drove commercial cloud revenue to $9.6bn this quarter, up 41 percent year-over-year,” said Amy Hood, CFO at Microsoft. “We continue to drive growth in revenue and operating income with consistent execution from our sales teams and partners and targeted strategic investments.”

Breaking down the figures, it seems that Microsoft’s revenues from its Productivity and Business Processes was $10.2 billion, an increased 14 percent, thanks to a 12 percent rise in Office Commercial products and cloud services revenue.

Revenues from Office Consumer products and cloud services revenue increased 8 percent; LinkedIn revenue increased 27 percent; Dynamics products and cloud services revenue increased 13 percent; and revenue in Intelligent Cloud increased 22 percent.

The Personal Computing revenue was up 8 percent at $10.7 billion, helped by a 9 percent rise in Windows OEM revenue.

Surface revenue increased 21 percent (down from 39 percent the previous quarter), and gaming revenue increased 5 percent (down from 8 percent the previous quarter.

Consumer worries

Whilst Nadella’s cloud focus has pleased investors and helped the firm deliver solid financials, some observers remains concerned at Microsoft’s commitment to its consumer market heritage.

Earlier this year for example Microsoft finally admitted there is no recovery from its ignominious retreat from the smartphone sector, after it advised Windows 10 Mobile diehards to switch to either Android or iOS handsets.

There is also concern about the future of Cortana in the consumer space, and matters were not helped when Microsoft signalled another consumer retreat last October when it confirmed that it was shutting its Groove Music service and told its users to switch to Spotify.

Microsoft has also been accused of ignoring Skype, which has been in decline against the likes of WhatsApp and Apple Facetime.

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