By Aaron Tilley
Microsoft Corp. posted record quarterly sales underpinned by
pandemic-fueled demand for videogaming and accelerated adoption of
its cloud-computing services as businesses continued to embrace new
digital tools during the health crisis.
The remote-work era has been a boon for Microsoft. In addition
to its videogaming and cloud-computing products, the company has
notched strong sales of its Surface laptops as people bought
devices to facilitate working from home and distance learning. The
use of Microsoft's Teams workplace-collaboration software, which
has been a priority for Chief Executive Satya Nadella, has jumped
during the pandemic with its offering of such services as text chat
and videoconferencing.
"What we have witnessed over the past year is the dawn of a
second wave of digital transformation sweeping every company and
every industry," Mr. Nadella said Tuesday.
The software giant said its fiscal second-quarter net income
rose more than 30% to $15.5 billion. Sales advanced 17% to $43.1
billion. Those figures beat Wall Street's expectation of net income
of $12.6 billion and sales of $40.2 billion, according to
FactSet.
Microsoft shares were ahead 4% in after-hours trading. The stock
gained more than 40% over the past year.
Tech companies broadly have been among the biggest corporate
winners during the pandemic and have drawn investor enthusiasm.
Apple Inc., which reports earnings Wednesday, has seen its stock
rise about 80% over the past year as people sheltering at home
bought Mac computers and iPads. Online retailer Amazon.com Inc. has
piled up revenue, including in its cloud-computing business that
competes with Microsoft's offering.
Microsoft finance chief Amy Hood told analysts Tuesday that
further growth is expected in the current quarter. Sales are
projected to come in at $40.35 billion to $41.25 billion, the
company said. Videogaming should see around 40% growth from a year
earlier, with Surface laptop sales also enjoying double-digit
increases, Ms. Hood said.
Mr. Nadella's bet on cloud computing has been pivotal to
Microsoft's multiyear run of year-over-year sales increases. Sales
for the company's Azure cloud-services have expanded rapidly;
however, before the pandemic hit the pace of growth was slowing as
the business gained scale. Remote working arrested that decline.
Azure sales increased 50% in the most quarter ended Dec. 31,
compared with a 48% rise for the prior three-month period.
Azure became a bigger source of revenue for Microsoft than its
Windows operating system licenses in the September quarter, said
Brent Bracelin, an analyst at Piper Sandler. Microsoft doesn't
break out Azure revenue, but the company is the world's
second-largest cloud-computing vendor after Amazon.com Inc.
The role of videogaming in Microsoft's fortunes also has
increased under Mr. Nadella, in part fueled by acquisitions. The
company last year bought ZeniMax Media Inc., the parent company of
the popular Doom videogame franchise, for $7.5 billion. Xbox
content and services revenue increased 40% in the latest quarter,
aided by the November release of two new gaming consoles, Xbox
Series X and S, to battle Sony Corp.'s PlayStation 5.
Mr. Nadella hailed the start for the Xbox consoles, marking "the
most devices ever sold in a launch month."
Overall gaming revenue was up 51%. Microsoft said revenue in the
business segment that includes videogame and laptop activities rose
to $15.1 billion, topping even the $14.6 billion its cloud-segment
delivered.
For Microsoft, the consoles, a relatively low-margin business,
are less important to its bottom line than hooking gamers on
subscription services for its games. But the company last week
misstepped when it tried to push through a price hike for some of
those services. Customers revolted, and the software giant reversed
course hours later.
Microsoft saw continued strength in its Surface laptop business,
with revenue rising 3% as the work-from-home period drags on. The
increase, though, didn't match the supercharged 37% sales gain in
the prior quarter.
"The pandemic has really shown the PC's central role in keeping
people connected, productive and secure," said Kyle Vikstrom, a
director of investor relations at Microsoft.
Revenue from licenses for Windows software rose 1%. Mr. Vikstrom
said the result beat Microsoft's internal projections, in matching
up against a strong prior-year quarter when customers were
upgrading the software after the company began phasing out support
for Windows 7.
Strong demand for business software has fueled competitive
pressure on Microsoft. Business-software vendor Salesforce.com Inc.
last month said it would spend around $27.7 billion to buy Slack
Technologies Inc., maker of a popular chat-based
workplace-collaboration platform. With Slack, Salesforce is looking
to more aggressively target a core business of Microsoft. The deal
is expected to close in the coming months.
Microsoft said even its advertising business, one of the few
segments that lagged early in the pandemic, is showing signs of
recovery. Search advertising revenue in the most recent quarter
advanced 2% after suffering double-digit declines in the prior two
periods.
LinkedIn, the business-focused social-media network owned by
Microsoft, recorded a 23% rise in sales, outpacing the growth of
the prior quarter. "That speaks to the recovering economy," said
Rishi Jaluria, an analyst for investment research firm D.A.
Davidson & Co. "This means business is hiring again."
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Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
January 26, 2021 18:51 ET (23:51 GMT)
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