Microsoft began its new fiscal year on Thursday with an optimistic growth forecast thanks to surging demand for its cloud services, boosting its shares to a record high.
The projection came on top of a strong finish to the software company’s last financial year, as cloud computing became a more mainstream service for large customers. The number of new customer contracts worth more than $10m for the company’s Azure cloud platform doubled in the latest quarter, according to Amy Hood, chief financial officer.
Wall Street had been expecting the rate of growth in Azure revenues to moderate, slowing to 77 per cent. But the business continued its recent streak to rise 89 per cent, and underpin overall sales growth of 17 per cent to $30bn — making for Microsoft’s strongest revenue quarter for years.
That was ahead of the $29.2bn Wall Street had been expecting. Pro forma earnings per share rose to $1.13, or 5 cents higher than expectations. Shares rose 3.5 per cent to $107.80 in after-hours trading.
Satya Nadella, chief executive officer, said on a call with analysts that the sales acceleration showed that Microsoft had correctly anticipated the next big trends and new markets in computing, with its focus on both centralised cloud services as well as edge computing. “We’re investing aggressively to build Azure as the world’s computer,” he said.
The big investment in data centres around the world lifted spending on property and equipment up by 74 per cent to $4bn in the latest period, and Microsoft said capital spending would rise even further in the current quarter, before starting to moderate.
But investors brushed off the higher spending as revenue from the commercial cloud — the key indicator of Microsoft’s cloud business — rose 53 per cent to $6.9bn, above most analysts’ estimates.
Microsoft’s overall performance in the latest quarter was also boosted by a more robust market for PCs, its traditional business. PC shipments rose in the second quarter for the first time in six years, according to research firm Gartner — a turnround that has come at the same time that global smartphone sales, though much larger, have declined. The PC rebound lifted sales in the company’s More Personal Computing division by 17 per cent, to $10.6bn.
For the current quarter, Microsoft issued guidance that indicated revenues could reach as much as $28.1bn, with $27.7bn as the midpoint of its guidance range. That compared with Wall Street’s forecast of $27.3bn.
The after-hours trading bounce that came on news of the forecast extended a rally that had already lifted the company’s shares by 40 per cent over the past year.
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