Microsoft Beats Q1 Estimates As Azure Growth Subsides

'Architecturally, we feel well-placed,' Microsoft CEO Satya Nadella says. 'In fact, at the Ignite conference (next month in Orlando), you'll see us…take the next leap forward even in terms of how we think about the architecture, inclusive of the application models, programming models on what distributed computing looks like going forward.'

Microsoft topped Wall Street forecasts on strong first-quarter revenue and earnings reported today, even as the growth of its Azure cloud computing platform continued to slide from the year-ago period.

The Redmond, Wash.-based technology company posted $33.1 billion in revenue for the fiscal-year 2020 quarter that ended Sept. 30, up 14 percent from the first quarter of last year and beating analysts’ consensus estimate of $32.15 billion. Net income climbed 21 percent to $10.7 billion, or $1.38 per share, higher than analysts’ expected $1.25.

“Microsoft provides a differentiated technology stack spanning application infrastructure, data and AI (artificial intelligence), developer tools and services, security and compliance, business process, productivity and collaboration,” Microsoft CEO Satya Nadella said. “Each of these areas represents secular, long-term growth opportunity. ”

Microsoft’s commercial cloud revenue, which includes Microsoft Office 365 Commercial, Microsoft Azure, the commercial portion of LinkedIn, Microsoft Dynamics 365 and other commercial cloud properties, increased 36 percent from the prior-year period to $11.6 billion.

“We again saw increased customer commitment across our cloud platform,” Microsoft chief financial officer Amy Hood said. “In Azure, we had material growth in the number of $10 million-plus contracts. Additionally, Microsoft 365 drove new customer adoption as well as expansion in our existing customer base, given the strong value Office 365, Windows 10 and Enterprise Mobility and Security provide as a secure, intelligent solution.”

The number of monthly active user of Office 365 Commercial surpassed 200 million in the quarter.

Microsoft Azure revenue, meanwhile, grew by 59 percent, down from 64 percent in the previous quarter and 76 percent from last year's first quarter. The company does not break out Azure revenue in dollar terms.

“Organizations today need a distributed computing fabric to meet their real-world operational sovereignty and regulatory needs,” CEO Satya Nadella said. “Every Fortune 500 customer today is on a cloud migration journey, and we are making it faster and easier. Just this week, we announced an extensive go-to-market partnership with SAP, making Azure the preferred destination for every SAP customer. And our partnerships with VMware and Oracle also bring these ecosystems to our cloud.”

Microsoft has seen Azure traction in every industry, from Azure Sphere connecting Starbucks coffee machines to Azure Stack enabling scenarios from smart factories and modern compliant banking to mobile health care in remote areas, according to Nadella. Some 20,000-plus customers are now using Azure AI, and more than 85 percent of Fortune 100 companies have used it in the last 12 months, he said.

Hybrid benefits are increasingly what’s getting customers excited about Azure and driving growth, according to Nadella, and “the fact that they can renew, knowing that they have the flexibility of both the cloud and the edge.

“When you think about what's happening even in the edge, our data center-edition products are very competitive in the marketplace,” he said. “Architecturally, we feel well-placed. In fact, at the Ignite conference (next month in Orlando), you'll see us…take the next leap forward even in terms of how we think about the architecture, inclusive of the application models, programming models on what distributed computing looks like going forward.”

Microsoft’s second-quarter guidance of $35.15 billion to $35.95 billion came in below analysts’ estimates.

At the company level, Microsoft continues to expect double-digit revenue and operating income growth, driven by continued momentum in its commercial business, according to Hood.

“We now expect operating margins to be up slightly year over year, even as we continue to invest with significant ambition in high-growth areas,” she said. “Demand for our hybrid offerings and cloud services remain strong, and capital expenditures will continue to reflect that. In Azure, we expect continued strong growth in our consumption-based business and moderating growth in our per user business, given the size of the install base.”

Microsoft stock, which finished regular trading up 0.64 percent to $137.24 per share today, was up 0.48 percent to $137.90 in after-hours trading as of 8:45 p.m. EST.