Microsoft Cloud Software Fuels Sales and Profit Beat

Microsoft topped quarterly sales and profit projections, fueled by steady demand for cloud-computing services and a surprisingly strong Windows business, according to Bloomberg. The company’s forecast promised robust growth will continue into next year.

The software maker pledged “double-digit“ percentage gains in sales and operating income for the year that started July 1. Results are getting a boost from larger deals for its Azure web services and brisk adoption of internet-based Office programs. Given Microsoft’s “strong ambition,“ it plans to increase operating expenses by 11% to 12% for the fiscal year, and will raise capital spending to build out data centers, CFO Amy Hood said.

Profit before certain items in the fourth quarter, which ended June 30, rose to $1.37 a share, compared with the $1.22 average forecast of analysts polled by Bloomberg. Revenue increased 12% to $33.7 billion, the company said Thursday in a statement, compared with the $32.8 billion projection. Net income in the quarter was $13.2 billion, or $1.71 a share. The company’s shares rose 2.3% in extended trading following the report and upbeat forecast. Microsoft climbed 15% in the quarter, compared with a 3.8% increase in the S&P 500 Index.

In the fourth quarter, commercial cloud revenue, a measure of sales from Azure, internet-based versions of Office software and some smaller products, rose 39% from a year earlier to $11 billion. Profit margins in the business widened by 6 points to 65%. Sales of Office 365 software to businesses jumped 31%. Azure cloud sales rose 64%, compared with 73% growth in the previous quarter and 76% in the one before that.

Revenue in the company’s productivity and business unit, which includes the Office suite of programs like Word, Excel and PowerPoint, rose 14% in the quarter to $11 billion, exceeding analysts’ average estimate of $10.7 billion. Sales from the Intelligent Cloud division, made up of Azure and server software, jumped 19% to $11.4 billion, the first quarter the unit has been Microsoft’s biggest by revenue. The unit known as More Personal Computing, including Windows software, Surface hardware and Xbox gaming products, saw revenue climb 4% to $11.3 billion in the recent period.

Sales of Windows to PC makers in the quarter were better than expected, rising 9% overall and 18% for the pricier professional editions, Microsoft said, far outpacing the overall PC market. Net income benefited from a $2.6 billion tax gain, which came as the company moved intellectual property to the U.S. to comply with the 2017 Tax Cuts and Jobs Act. While the gain is being recognized up front in the recent quarter, the company will face a higher tax rate in coming quarters.