Microsoft Profit Beats Expectations Thanks to Cloud Services

Microsoft Corp has reported quarterly profit that was better than had been expected as the demand for cloud computing services by companies increased and its business of personal computer software stabilized.

Shares of the largest software company in the world rose by 3.1% during trading afterhours on Thursday.

The focus of Microsoft on the rapidly-growing cloud platforms and applications is helping beat the slowing demand for PCs that hurts its sales of Windows, which is the software that powered Microsoft during the 1990s.

Under CEO Satya Nadella, the cloud business at Microsoft, which includes its products like Dynamic 365, Office 365 and Azure, its flagship computing platform, has emerged as its biggest source of growth.

Revenue from its intelligent cloud business grew by 14% to end the quarter at $6.92 billion in its fiscal first quarter ending September 30. Analysts were expecting revenue to reach $6.7 billion.

Revenue from its flagship Azure, which is in competition with Amazon Web Services as well as offerings from IBM, Google and Oracle, grew by 90% in comparison to a growth rate of 97% during the previous quarter.

The strong performance by Azure helped to lift the cloud business gross margin for Microsoft to 57%, said the director of investors relations Stephanie Rodriguez.

Microsoft said the run rate for annualized revenue of its commercial cloud reached $20.3 billion during the quarter. During 2015, Nadella placed a target of $20 billion by 2018 for cloud revenue.

In an analysts’ call following the release of earnings, the CEO at Microsoft said that Costco Wholesale the retailer recently chose to use Azure for its cloud platform.

Revenue from the personal computing division at Microsoft, its largest by the amount of revenue, was down 0.2% to just over $9.38 billion, but beat estimates handily by analysts of $8.81 billion.

The unit has Xbox consoles, Windows software, Surface PCs, and online search advertising.

Following two consecutive quarters of dropping revenue at Surface, Microsoft posted an increase year over year of 12% in revenue for laptops and tablets during the recently ended quarter, boosted by the May release of its latest Surface.

Microsoft also benefitted from an increase year over year of 13% in Dynamics revenue. Dynamics is its sales software company that competes with companies such as

Microsoft posted $6.58 billion in net income equal to 84 cents a share, up from its $5.67 billion equal to 72 cents a share for the same period one year ago.

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