Microsoft Touts Cloud Growth Despite Third Quarter Revenue Miss

Microsoft's cloud keeps growing steadily, taking the sting out of a slight revenue miss in the third quarter of fiscal 2017.

Microsoft Cloud Growth

Microsoft's latest earnings fell short of financial analyst expectations in terms of revenue, but its earnings per share performance managed to beat estimates.

The company today reported revenue of $23.56 billion and earnings per share of $0.73 for the third-quarter of fiscal year 2017. Wall Street analysts had expected revenue of $23.62 billion and earnings per share of 70 cents on $5.7 billion in net income.

Again, the company's cloud business continues to lift the Redmond, Wash. technology giant's fortunes.

"Strong execution and demand for our cloud-based services drove our commercial cloud annualized revenue run rate to more than $15.2 billion," announced Amy Hood, executive vice president and chief financial officer at Microsoft, in a statement. Microsoft's Intelligent Cloud unit generated $6.8 billion in sales, a year-over-year increase of 11 percent, driven, in part, by a 93 percent jump in Azure revenue.

"It was a very good quarter for Azure with revenues almost doubling. Intelligent cloud business is now about 20 percent of revenues and growing faster than any other business," observed Jack Gold, principal analyst at J. Gold associates, in email remarks sent to eWEEK. "This should continue and shows that Microsoft has now made the transition to a cloud company in a big way."

And Microsoft's cloud customers aren't skimping on higher-priced services, strengthening its position among its rivals. "Eighty percent of Azure customers use premium services [meaning] that most aren't buying on price alone," Gold said, noting that lower cloud pricing due to competitive pressures, particularly from Amazon Web Services (AWS), isn't hindering Microsoft ability to monetize its cloud.

"This is very good news for Microsoft as many were worried that a price war with AWS and Google would hurt them. [It] seems enterprises are still selecting Microsoft more than ever and for higher-level services where margins/profits are high," continued Gold.

Strong demand for the company's Office solutions helped its Productivity and Business Processes segment register a 22 percent year-over-year increase in sales to $8 billion.

Office commercial and consumer revenues were up 7 percent and 15 percent, respectively. Office 365 now has 26.2 million consumer subscribers, according to Microsoft.

Microsoft's move to cloud-enable Dynamics, its suite of customer relationship management and enterprise resource planning software, also appears to be paying off. Revenue was up 10 percent, mostly due to an 82 percent increase in sales generated by the cloud-friendly Dynamics 365 platform.

The Personal Computing segment took a hit, registering a 7-percent decline on sales of $8.8 billion. Lower phone sales, were partly to blame.

According to IDC's latest analysis of the smartphone market, Microsoft clings to a 0.1 percent share of the market. This year, the analyst group expects that the company will only ship 1.8 million, a drop of nearly 70 percent.

Windows OEM revenue climbed 5 percent. Sales of Surface devices fell 26 percent, a sign that buyers are tiring of the company's aging tablet line, Gold noted. LinkedIn, which just crossed the 500 million user mark, generated $975 million in revenue for the software maker.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...