Microsoft’s future to roll on cloud services growth

Microsoft topped fourth-quarter estimates for revenue and earnings on Tuesday, boosted by gains at its Cloud and LinkedIn operations.

The company reported diluted earnings per share of $2.17 on revenue of $46.2 billion.

The software and cloud services giant said its results were helped in particular by strength in its Intelligent Cloud businesses where revenue rose 30%, year-over-year to $17.4 billion. Within the unit, Microsoft’s Azure cloud computing revenue rose 51% year over year.

The company said LinkedIn revenue rose 46%, helped by Marketing Solutions growth of 97%.

“Our results show that when we execute well and meet customers’ needs in differentiated ways in large and growing markets, we generate growth, as we’ve seen in our commercial cloud — and in new franchises we’ve built,” Satya Nadella, chairman and chief executive officer of Microsoft, said in a statement.

He said that gaming, security, and LinkedIn, have all topped $10 billion in annual revenue over the past three years.

In the upcoming quarter, analysts are forecasting adjusted net income of $14.8 billion, or $1.96 a share, on sales of $42.5 billion.

The growth comes despite the Biden administration’s decision to cancel the $ 10 billion JEDI cloud contract that it had awarded to Microsoft, over the objections of cloud industry leader Amazon Web Services. The $10 billion contracts had originally been awarded to Microsoft. But Amazon protested that the Trump administration had interfered in the decision because of Trump’s animosity towards then Amazon CEO Jeff Bezos and the Washington Post, which Bezos owns.

The loss of that deal is likely to be a subject of questions from analysts during the earnings conference call with Microsoft CEO Satya Nadella and CFO Amy Hood.

Microsoft’s report also comes amid growing cybersecurity concerns, including cyberattacks that exploited vulnerabilities in Microsoft’s Exchange Server, attributed to hackers affiliated with China’s Ministry of State Security.

The major takeaway is that Microsoft is seeing the most growth in parts of its business where it has been able to make the shift to cloud services and subscriptions. This helps to explain why the company is taking a new approach with the introduction of Windows 11 and its vision for Cloud PCs.

Microsoft’s stock fell $6.82, or 2.4%, to $279.73 in after-hours trading. The stock fell 0.9% during the regular session on a bearish day for Wall Street.

Overall, the stock has risen about 10% since the company last reported earnings on April 27.