Microsoft Expects Double-Digit Growth for This Year as Demand for Cloud Computing Services Rise

Microsoft on Tuesday forecast double-digit revenue growth for the next fiscal year, driven by demand for cloud computing services, and its shares jumped about 4 percent.

Microsoft forecast Intelligent Cloud revenue of $21.1 billion (roughly Rs. 1,61,695 crore) to $21.35 billion (roughly Rs. 1,63,611 crore) for its fiscal fourth quarter, driven by strong growth in its Azure platform. That compared with a Wall Street consensus of $20.933 billion (roughly Rs. 1,60,427 crore), according to Refinitiv data.

"If there is any macro headwind, where you have more value for less price means you win. In our case, when it comes to our commercial cloud offerings, we have significant advantages on that across the stack," Microsoft's chief executive, Satya Nadella, said when asked how the company was projecting double-digit growth for the next fiscal year.

TECHnalysis Research chief analyst Bob O'Donnell noted Microsoft's ability to buck industry trends.

“Despite current gloom and doom around big tech, Microsoft's strong revenues and robust forecast highlight that not all tech is at risk," O'Donnell said. "For companies that focus on delivering products and services that businesses need to modernize their operations ... there's still plenty of upside.”

Microsoft on Tuesday reported profit and revenue for its fiscal third quarter that beat Wall Street expectations, also benefiting from demand for its cloud-based services.

Microsoft results indicate that it can keep its pandemic-fueled sales growing as economies reopen and businesses shift to a hybrid model of allowing staff to alternatively work from office and home.

That trend is also helping drive up revenue of Windows products, said Brett Iversen, Microsoft's general manager of investor relations. "Strength in the commercial PC market drove Windows OEM revenue up 11 percent," he told Reuters. Third-quarter Azure annual growth of 46.0 percent was steady from the previous quarter and in line with estimates of 45.6 percent growth compiled by Visible Alpha. Still, Azure growth has showed a steady drop from fiscal 2020 when it was in the 60 percent range.

In contrast, Google parent Alphabet Inc on Tuesday reported that Google Cloud's growth rate in the first quarter fell slightly to 43.8 percent, from 44.6 percent in the 2021 fourth quarter. Alphabet's first-quarter revenue came in below expectations, and its shares were down 2 percent in after-hours trading.

Microsoft's Nadella said the number of $100 million-plus (roughly Rs. 766 crore) Azure deals more than doubled year-over-year in the third quarter.

"These numbers show that customers continue to turn to Microsoft as they accelerate their shift to cloud computing and the current unsettling economic environment has not yet impacted the company's main growth driver," said Haris Anwar, senior analyst at Investing.com.

Still, Microsoft chief financial officer, Amy Hood, said the company's business could be impacted if China's shutdown over the pandemic extends into May, although the current impact of the shutdowns is already reflected in Microsoft's outlook.

"However, extended production shutdowns that reach into May would further negatively impact our outlook across Windows OEM, surface, and Xbox hardware," she told investors.

The company reported revenue of $49.36 billion (roughly Rs. 3,78,270) in the third quarter, compared with $41.7 billion (roughly Rs. 3,19,567 crore) a year earlier. Analysts on average had expected revenue of $49.05 billion (roughly Rs. 3,75,895 crore), according to Refinitiv IBES data.

Net income rose to $16.73 billion (roughly Rs. 1,28,210 crore), or $2.22 (roughly Rs. 170) per share, in the quarter ended March 31, from $15.46 billion (roughly Rs. 1,18,470 crore), or $2.03 (roughly Rs. 150) per share, a year earlier. That topped analyst targets of $2.19 (roughly Rs. 150).

© Thomson Reuters 2022