Microsoft’s Profit Rises 19% as Its Cloud Business Drives Strong Results

SEATTLE — In the five years since Satya Nadella became Microsoft’s chief executive, he has transformed the company into a cloud computing leader. The quarter ending in March provided further evidence that the turnaround he has helmed shows little signs of abating.

With its quarterly earnings released on Wednesday, Microsoft delivered a clean sweep for investors, beating almost every performance expectation. It had $30.6 billion in revenue, up 14 percent over a year ago, and profit rose 19 percent, to $8.8 billion.

“This is a press release Nadella should print out and frame in his office,” said Dan Ives, a managing director at Wedbush Securities.

Shares in the company were up more than 5 percent in aftermarket trading, and they continued trading higher on Thursday, helping to briefly push the company to $1 trillion in market capitalization.

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Microsoft has already been through the painful early phases of its cloud push, when it spent heavily to build data centers worldwide before making meaningful sales, said Dan Romanoff, who covers Microsoft for the investment research firm Morningstar.

Azure, Microsoft’s flagship cloud offering, continues to add to its already large user base, with sales up 73 percent last quarter. “You don’t really get revenue growth unless you have a usage growth, so this is customers deploying and using Azure,” said Amy Hood, the company’s chief financial officer.

Amazon essentially created the industry of cloud computing, giving it years of advantage. Microsoft has been racing to catch up, using its own advantage — the many businesses that already use Microsoft’s non-cloud offerings. “It’s not a giant leap to take a bunch of Microsoft products from your server closet to a Microsoft Azure world,” Mr. Romanoff said.

Microsoft has notched particular success with what is known as a hybrid cloud approach, which lets companies use one set of tools to manage what they store both on their own servers and on shared space in remote data centers. That has helped ease in more customers, including those that have regulatory or proprietary reasons for wanting to house some of their own data.

Revenue for Microsoft’s server products and cloud services, a proxy for its hybrid products, grew 27 percent, beating forecasts from both the company and Wall Street.

Microsoft has signed some enormous deals with customers like Walgreens Boots Alliance that typically package together Azure cloud and artificial intelligence offerings with its cloud-based subscriptions to Office, security and other features like Teams, an internal chat application like Slack. Mr. Nadella said 91 of the Fortune 100 companies used Teams.

These deals illustrate what Mr. Nadella has called an increase in the “tech intensity” of companies as they evolve. “Digital technology today is not about tech companies doing innovation. It is about the rest of the world doing innovation with technology,” Mr. Nadella said in a call with analysts on Wednesday.

There is one downside to the cloud: Analysts say such offerings tend to be less profitable. For example, Citi estimates that traditional product licenses have 90 percent gross profit margins, versus 40 to 45 percent margins for Azure. The long-term growth in profit will need to come from selling more services and products to customers — essentially Microsoft gaining a bigger share of how much companies and agencies spend on technology over all.

Microsoft had other bright points. LinkedIn revenue grew 27 percent, as recruiters and job seekers use the service more, and the Surface line of tablets and computers grew 21 percent, with a balance between consumer and corporate demand, Ms. Hood said.

Microsoft had seen strong growth in its gaming business for more than a year in part because of the blockbuster game Fortnite. Gaming grew just 5 percent in the latest quarter, in part because people didn’t buy as many consoles and make as many in-game purchases as Microsoft had expected.

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