US tech giant Microsoft Corp beat analysts’ estimates for the latest completed quarter because of a slight re-acceleration of its cloud computing business and winning of new users for its Teams messaging and collaboration software with an increasing trend of working from home and online learning because of the novel coronavirus pandemic.
Companies such as Microsoft, Amazon.com Inc’s cloud unit and Alphabet Inc’s Google Cloud have benefitted from the growth in an overall move to toward cloud-based computing accelerated by the pandemic.
This trend also helped Microsoft in terms of increased demand for its Windows operating systems for laptops as well as for its Xbox gaming services with families working, learning and playing at home because of the restrictions imposed due to the pandemic. This resulted in the company reporting quarterly profits at 30 per cent higher than expectations.
The company said that compared to 75 million in April, the number of daily users of its Teams messaging and collaboration software increased to 115 million during the company’s fiscal first quarter.
“It was another healthy quarter, with continued demand for remote offerings continuing to power results,” Microsoft Chief Financial Officer Amy Hood said in an interview.
The company also reported a 48 per cent growth in revenues from its Azure, the company’s flagship cloud computing business, which as 1 per cent greater than the previous quarter and as well ahead of estimates of Wall Street of 43.45 per cent, according to consensus data from Visible Alpha.
“An increase in larger, long-term Azure contracts” was instrumental in the rise in the fiscal first quarter ending in September, Hood said.
She forecast “continued strong growth” for Azure while on an investor call.
Many of its products are now sold by Microsoft through recurring subscriptions mode which investors have welcomed because it creates sources for stable flow of revenue. Compared to the previous quarter, there was no improvement in the value of Microsoft’s future recurring revenue contracts with big business customers while there was a slight rise in its proportion of one-time deals after two quarters of growth.
Microsoft uses a “commercial cloud” metric to bundle several sets of software and services such as Office and Azure which is closely watched by investors to get an estimate of the progress being made by the company in selling its products to large businesses. Compared with 66 percent for the same quarter a year earlier, Microsoft’s commercial cloud gross margins – a measure of the profitability of its sales to large businesses – was at 71 per cent.
A change in accounting rules for Microsoft’s servers as partially responsible for some of the rise, Hood said, but added that sales of lucrative software such as Dynamics 365, which competes with Salesforce.com, were also responsible for the better margins.
“That Dynamics 365 revenue growth of 38 per cent was better than we thought and quite good,” Hood said.
(Adapted from CGTN.com)