Microsoft revenue beats as remote work feeds cloud demand, boosts Teams

(Reuters) – Microsoft Corp (MSFT.O) reported quarterly revenue above Wall Street estimates on Wednesday, boosted by higher demand for its cloud platform Azure and collaboration app Teams, and as people locked in their homes due to the pandemic played more games on Xbox consoles.

The company’s shares, which rose over 12{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} this year, were up about 5{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in extended trading.

Microsoft said Windows benefited from increased demand to support remote work and learning scenarios, offset in part by supply chain constraints in China that improved late in the third quarter.

Microsoft said on Wednesday that supply chain constraints due to the coronavirus pandemic had delayed some of its spending to build Azure data centers.

Revenue was also helped by demand for the company’s cloud services. However growth in Azure slowed to 59{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in the reported quarter, compared to a growth of 62{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in the second quarter.

Microsoft said revenue for its “commercial cloud”, a combination of Azure and the cloud-based versions of software such as Office, rose 39{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to $13.3 billion.

The business’ gross profit margin, a key measure of cloud profitability that Microsoft has told investors it expects to improve, was 67{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} versus 63{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} last year.

Microsoft also said capital expenditure was $3.9 billion, up from $3.4 billion a year earlier and lower than the $4.5 billion the previous quarter as the company spends on data centers to support Azure.

The coronavirus outbreak and the subsequent shift to work from home has boosted user engagement on Microsoft’s Teams app that saw video calls rocketing 1,000{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} in the month of March.

Teams, which competes with Zoom Video Communications Inc’s (ZM.O) video conferencing app and Slack Technologies Inc (WORK.N), has benefited from these measures in many countries, hitting 44 million users last month.

Microsoft said revenue in its Intelligent Cloud segment, that includes Azure, rose 27{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to $12.28 billion, beating analysts’ estimates of $11.87 billion, according to IBES data from Refinitiv.

The tech giant’s revenue rose 15{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} to $35.02 billion in the third quarter ending March 31, beating estimates of $33.66 billion. (bit.ly/3f1Yeu3)

Net income rose to $10.75 billion, or $1.40 per share, from $8.81 billion, or $1.14 per share, a year earlier.