Microsoft Corp has reported its Azure cloud computing services climbed 50%, the next quarter of acceleration in a business that had begun to slow as the global pandemic benefited the software maker’s investment in working from home.
The company’s shares rose 5% in extended trading after gaining about 41% in 2020 since COVID-19 shifted computing to regions in which the software manufacturer has bet large. Additionally, it saw a surprise recovery in sales on the LinkedIn professional social network and navigated a chip deficit that had threaten to hold back its Xbox company.
The shift to work from home due to the COVID-19 pandemic has accelerated enterprises’ switch to cloud-based computing, benefiting Microsoft and rivals such as Amazon.com’s cloud unit and Alphabet Inc’s Google Cloud.
The Xbox Live online gaming service has more than 100 million monthly active users. Microsoft did not give an update on the 115 million Teams daily users it disclosed in October but did say that the mobile version is used by 60 million daily users.
Microsoft said revenue in its “Intelligent Cloud” segment rose 23% to $14.6 billion, with 50% growth in Azure. Analysts had expected a 41.4% growth in Azure, according to consensus data from Visible Alpha. The previous quarter Azure grew 48%.
“This was driven by continuing customer requirement, with stronger-than-expected consumption as customers have increased their focus on electronic transformation,” Microsoft CFO Amy Hood told journalists at our partner news agency Reuters in an interview.
Atlantic Equities analyst James Cordwell said that last year, “economic weakness and flaws in implementation had masked the extent to which Azure was profiting from the accelerated shift to the cloud brought on by the pandemic. However, with all these results that benefit is now plain to see”
LinkedIn revenue growth, which dipped as the pandemic shut down businesses, reached 23%, near its pre-pandemic rate of 24% a year earlier. Hood said advertisements on LinkedIn drove the increase.
“We continue to see advertising market recovery,” she said.
Microsoft bundles several sets of software and services such as Office and Azure into a “commercial cloud” metric that investors watch closely to gauge the company’s progress in selling to large businesses.
Commercial cloud gross margins – a measure of the profitability of its sales to large businesses – were 71% in the quarter, compared with 67% a year earlier.
Revenue from its personal computing division, which includes Windows software and Xbox gaming consoles, rose 14% to $15.1 billion, driven by strong Xbox content and services growth, beating analysts’ estimates of $13.5 billion, based on IBES data from Refinitiv.
Microsoft in November introduced two new Xbox consoles, its most visible non-work and non-school brand, but the hardware proved difficult to locate as a global semiconductor shortage contributed to tight stocks as many retailers. Xbox hardware sales were up 86% despite the shortages, and Hood said growth is likely to last, with older models also contributing to sales.
“Demand still outpaces supply, and we do expect that to continue,” Hood said.
“The team did a nice job of getting consoles, both of this newest generation as well as continuing to sell the older generation, which provides a great value for gamers.”
Microsoft’s gaming business topped $5 billion in annual sales for the first time ever and was propelled by gaming subscriptions and sales in addition to new consoles. Microsoft said Xbox services and content revenue grew 40% in the quarter.
The software giant general revenue rose to $43.08 billion in the next quarter ended Dec. 31, from $36.91 billion a year earlier, beating analysts’ estimates of $40.18 billion, based on IBES data from Refinitiv.