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Microsoft’s cloud powers another surprisingly strong quarter

The company beat analyst expectations on both earnings per share and revenue. The only small disappointment was a lack of growth in the Xbox business.

Microsoft’s cloud powers another surprisingly strong quarter
[Photo: Sean Gallup/Getty Images]

Microsoft reported a strong June-ending quarter, beating analysts’ revenue expectations by a comfortable margin.

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The company said it took $33.7 billion in revenue for the quarter, a 12% improvement on the same quarter last year. FactSet analysts expected only $32.8 billion. Microsoft reported earnings of $1.71 per share (GAAP), up 50% from last year. Net income was $13.2 billion (GAAP), up from $8.9 billion last year.

Almost all aspects of Microsoft’s business grew in the June quarter. Its Office 365 commercial business was up 31%. Its Dynamics 365 CRM software revenue grew 45%. LinkedIn revenue grew 21%. Surface hardware sales grew 14%.

The biggest factor in the Microsoft’s performance was its commercial cloud services business, which grew 39% in the quarter. Microsoft CEO Satya Nadella said the business brought in $38 billion over the past year, at a 63% profit margin.

“Microsoft is firing on all cylinders now, growing big in growing markets, and even managing growth in mature markets like PCs,” said Moor Insights & Strategy principle analyst Patrick Moorhead. “In the cloud, Microsoft is cementing its spot as the #2 provider in IaaS, PaaS, and SaaS services.”

The only real soft spot in the earnings report was a 49% drop in Xbox hardware sales revenue in the June quarter.

Fiscal-year results

For the full fiscal year Microsoft’s revenue increased 14% to $125.8 billion. Net income was $39.2 billion (GAAP) and $36.8 billion non-GAAP, and increased 137% and 22%, respectively.

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Nadella said this about the company’s full-year performance: “It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry.” Nadella says Microsoft is seeing larger, multi-year commercial cloud agreements and “growing momentum across every layer of our technology stack.”

Case in point is the long-term agreement with AT&T Microsoft announced earlier this week. In new deployments Microsoft will provide the cloud services while AT&T will provide the 5G communications network.

As of now Microsoft is the biggest tech company in the world if you go by its $1.04 trillion valuation. The momentum its getting from the cloud business shows no sign of stopping.

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About the author

Fast Company Senior Writer Mark Sullivan covers emerging technology, politics, artificial intelligence, large tech companies, and misinformation. An award-winning San Francisco-based journalist, Sullivan's work has appeared in Wired, Al Jazeera, CNN, ABC News, CNET, and many others.

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