Microsoft earnings bump driven by cloud demand

26 Jan 2022

Image: © theartofpics/Stock.adobe.com

High demand for Azure and Teams in a ‘new era’ of work has boosted Microsoft’s earnings.

Microsoft has had yet another strong quarter with its cloud services leading the way as people shift to remote and hybrid work.

The software giant’s revenue in its second fiscal quarter of the year stood at $51.7bn, 20pc higher than it was in the same quarter last year, while net income rose 21pc to $18.8bn. The revenue figure beat analyst expectations by $1bn, according to FactSet figures reported by The Wall Street Journal.

Future Human

Microsoft’s cloud revenue was $22.1bn, up 32pc over the previous year’s quarter. According to Amy Hood, chief financial officer, this was driven by the strong long-term commitments in the Azure segment. Azure and other cloud services saw revenue growth of 46pc in the quarter.

Satya Nadella, chief executive of Microsoft, told investors on an earnings call yesterday (25 January) that “we’re living through a generational shift in our economy and society” as the pandemic has disrupted the way people live, work and use technology.

“We are innovating and expanding our entire portfolio across consumer and commercial segments to help people and organisations thrive in this new era,” he said.

“As digital technology as a percentage of global GDP continues to increase, we are innovating and investing across diverse and growing markets, with a common underlying technology stack and an operating model that reinforces a common strategy, culture and sense of purpose.”

Microsoft Teams surpassed 270m monthly active users for the first time, indicating a strong demand for a digital means to run businesses and collaborate as hybrid work takes hold.

Nadella said that services such as Teams Rooms and Mesh will enhance the way people communicate with each other in the virtual workplace platform, with Mesh “bringing the metaverse to Teams” in a bid to give users immersive experiences.

He added that more than 90pc of Fortune 500 companies used Teams Phone in the last quarter, an indication that the platform is “rapidly becoming the standard for unified communications”.

Ioan MacRae, chief executive of Maintel, called Azure the “golden goose” of Microsoft as cloud becomes increasingly important to the success of Big Tech. “Microsoft’s Teams and Azure offerings are expected to remain central to how many businesses now operate,” he said.

“Teams can support calls, emails, video conferencing, document sharing and chat all in one place. Very few apps provide a similar one-stop-shop approach, which is a key reason for its success.”

While cloud was a big driver of revenue in the latest quarter, Windows and PC demand was also up and Nadella said he was “delighted” by the response to Windows 11, which was released in October. There are now more than 1.4bn monthly active devices running Windows 10 or 11.

LinkedIn revenue was also up 37pc as the labour market experiences a ‘great reshuffle’. Microsoft said confirmed hires on the platform for professionals were up 110pc and more than 24,000 events were created each week.

“In this new economy, LinkedIn has become mission critical to connect creators with their communities, job seekers with employers, learners with skills, and sellers with buyers,” said Nadella.

Microsoft reported record engagement and revenue in its gaming services last quarter, with Xbox content and services revenue up 10pc. The company is currently making a big play in the gaming sector, with plans for a $69bn acquisition of Activision Blizzard.

While the deal raised concerns that some games would become exclusive to Microsoft’s console, Activision said this week it will release at least three of the next games in the Call of Duty franchise on PlayStation and Xbox.

Don’t miss out on the knowledge you need to succeed. Sign up for the Daily Brief, Silicon Republic’s digest of need-to-know sci-tech news.

Vish Gain is a journalist with Silicon Republic

editorial@siliconrepublic.com