Sluggish Azure growth sees Microsoft's shares dip

Sluggish Azure growth sees Microsoft's shares dip

Azure's growth is the best direct measure of performance against top cloud rival's Amazon Web Services

Credit: Dreamstime

Microsoft's flagship cloud computing business, Azure, reported quarterly sales growth of under 50 per cent for the first time ever on Wednesday, sending the tech giant's shares down 3 per cent.

Microsoft said revenue in its Intelligent Cloud segment rose 17 per cent to US$13.4 billion, with 47 per cent growth in the Azure component, which includes essential computing and storage services. Analysts on average had expected cloud revenue of US$13.09 billion in the fourth quarter ended June 30, according to IBES data from Refinitiv.

Azure's growth is the best direct measure of performance against top cloud rival's Amazon Web Services (AWS), as Microsoft does not break out Azure's revenue by dollar amounts.

Microsoft chief financial officer Amy Hood said commercial bookings growth of 12 per cent, which reflects customer contracts for future software and services, was roughly unchanged from the previous quarter and beat company estimates. The figure signals that customers are keeping long-term technology spending plans intact despite the novel coronavirus pandemic, she added.

"Different industries have been impacted differently, and I think it's important to have those nuanced conversations with our customers, which we're doing," Hood said in an interview.

"But overall, I feel like our strong position in the cloud has allowed us to have good results and support our customers as they work on the next couple of years of digital transformation."

While Azure growth dipped, Hood said the rate was in line with company expectations. She said what Microsoft calls consumption-based Azure revenue, from client purchases of compute and storage services, continued to expand.

However, growth slowed for "seat-based" Azure revenue, such as from sales of businesses tools to manage employees' mobile devices, she said. The installed base rose 26 per cent to 147 million seats, versus 34 per cent growth to 134 million seats the quarter before.

Microsoft's total revenue rose 13 per cent to US$38.03 billion in the quarter, beating estimates of US$36.5 billion, according to IBES data from Refinitiv.

The revenue beat was powered by gains in its More Personal Computing unit, as more people globally turned to its products to work and game remotely during coronavirus-induced lockdowns.

Revenue from the unit, the largest by sales, rose 14 per cent to US$12.9 billion, beating analysts' estimates of US$11.46 billion. The unit includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers.

Microsoft said its professional networking site, LinkedIn, was hurt by the weak job market and reductions in advertising spend.

The company's commercial cloud, a closely watched metric by investors, surpassed US$50 billion in annual revenue for the first time this year.

Net income fell to US$11.20 billion, or US$1.46 per share, from US$13.19 billion, or US$1.71 per share, a year earlier.

(Reporting by Stephen Nellis in San Francisco and Munsif Vengattil in Bengaluru; Editing by Maju Samuel and Richard Chang)

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