SEATTLE – Even as much of the global economy has shutdown amid the coronavirus pandemic, Microsoft recorded huge revenue gains in its fiscal third quarter as homebound workers turned to its cloud-computing services to get their jobs done.
In the last quarter, companies raced to Microsoft’s cloud offerings, in which they rent internet-based computing services as they need them so employees could work remotely, Satya Nadella, chief executive of the Redmond, Washington, software giant, said.
“We’ve seen two years’ worth of digital transformation in two months,” Nadella said in a statement.
Analysts expected as much, and that’s one reason Microsoft’s stock is closing in on its all-time high hit in early February. It’s shares have jumped nearly 12% since the beginning of the year even as the overall Nasdaq composite index has fallen 1%, helping secure Microsoft’s spot as the most valuable public company in the world with a market capitalization of $1.35 trillion.
Microsoft had already seen rapid adoption of its cloud offerings, and said in its earning release that the coronavirus didn’t slow any of that down. Microsoft saw a spike in several of its cloud-based offerings, including its Teams video chat business and its security software. Its Windows PC operating system business, as well as its lineup of Surface computers, benefited from remote work and school mandates. And its Xbox business gained as well, as consumers turned to gaming with other entertainment options limited.
It’s the second bellwether tech company to report financial results in the wake of the pandemic. And like Google-parent Alphabet, Microsoft is getting stronger, a sign that the economic fallout from the coronavirus may help the biggest tech giants consolidate their power.
“The big get bigger. Scale wins,” Stifel Nicolaus & Co. analyst Brad Reback said. “These guys have all the right products in place.
In the quarter ended March 31, Microsoft earned $10.8 billion, or $1.40 per share, on $35.0 billion in sales. Earnings jumped 22 percent from the year-ago quarter, while sales grew 15%.
Analysts surveyed by S&P Global Market Intelligence expected Microsoft to report per-share earnings of $1.27 on revenue of $33.7 billion.
Notably, revenue from the company’s Intelligent Cloud segment, which includes its Azure cloud-computing business, rose 27% to $12.3 billion. Microsoft trails only Amazon’s cloud unit, Amazon Web Services, in the market for computing infrastructure that’s delivered over the internet on a subscription basis.
(Amazon chief executive Jeff Bezos owns The Washington Post.)
Last fall, Microsoft’s cloud-computing business beat out Amazon for a controversial $10 billion, 10-year cloud contract from the Pentagon. Amazon is currently challenging that award.
Microsoft noted just a few financial setbacks from the pandemic. Supply chain constraints in China held back its Windows and Surface business toward the end of the quarter. And cuts in advertising spending hurt revenue from its LinkedIn professional-networking service and its web search business.
And even though Microsoft spent $3.9 billion in the quarter on capital expenditures, money doled out largely to build massive data centers for its cloud services, the company said it delayed spending related to supply-chain constraints.
Microsoft shares rose during Wednesday’s trading, finishing at $177.43, up 4.5% for the day. The company results, posted after the market closed, helped boost shares another 4.5% in after-hours trading, just shy of its highest ever close of $188.70, achieved on Feb. 10.