Microsoft Earnings Jump on Pandemic-Driven Cloud, Videogaming Demand
27 January 2021 - 8:50AM
Dow Jones News
By Aaron Tilley
Microsoft Corp. posted record quarterly sales underpinned by
pandemic-fueled demand for videogaming and accelerated adoption of
its cloud-computing services.
The software giant Tuesday said fiscal second-quarter net income
rose more than 30% to $15.5 billion. Sales advanced 17% to $43.1
billion. Wall Street expected sales of $40.2 billion and net income
of $12.6 billion, according to FactSet.
The remote work era has been a boon for Microsoft. In addition
to its videogaming and cloud-computing products, the company has
seen strong sales for its Surface laptops as people bought devices
to work remotely and enable distance learning. And use of
Microsoft's Teams workplace collaboration software that includes
text chat and videoconferencing, and has been a priority for Chief
Executive Satya Nadella, has jumped during the pandemic. Microsoft
shares have risen more than 37% over the past year.
"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.
Microsoft shares rose more than 5% in after-hours trading.
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. The remote work era arrested that
decline. Azure sales increased 50% in the most recent quarter, up
from 48% expansion in 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.
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.
The business software market, core to Microsoft, also is
becoming more heated. 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 go after a core business of Microsoft. The deal is
expected to close in the coming months.
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Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
January 26, 2021 16:35 ET (21:35 GMT)
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