Cloud Drives Up Microsoft’s Profits
Cloud is undoubtedly driving the profits of big techies like AWS and Microsoft, as the recent financial results show. On Thursday, Microsoft released the results for the fourth quarter of 2016, and it shows a four percent increase in overall earnings.
It reported a net income of $5.2 billion or $0.66 a share, when compared to $5.02 billion or $0.62 a share a year ago. Overall, Microsoft’s revenue rose to $24.09 billion from $23.8 billion almost a year ago. These numbers beat the expectations of Wall Street, so Microsoft’s shares are trading at all-time highs, and it closed at $64.27 at the end of trading on Thursday, which is almost a one percent increase through the day.
Much of this rise in its profits has come from its cloud business, signaling that cloud computing is the future of Microsoft. Sales from Azure cloud computing platform increased by 93 percent from a year ago, and revenue from its “intelligent” cloud segment rose by eight percent to reach $6.9 billion.
What is surprising about this increase in revenue is that it includes the impact of LinkedIn’s acquisition, which was an astronomical $26.2 billion, making it one of Microsoft’s biggest acquisitions. The revenue from LinkedIn was also only minimal, as the deal was finalized only on December 8th, which means, it includes only a few weeks of LinkedIn’s revenue.
Much of this foray into cloud can be attributed to Satya Nadella, as he strengthened this line of business after he took over as the CEO of the company. In a way, he has reinvented a company that was struggling with a failing PC business.
For many years, Microsoft didn’t have much idea on which direction it should pursue after its Windows software hit a plateau. It tried to compete with Google in search and Apple in smartphones – both of which unfortunately misfired. Satya Nadella came to the fore during this uncertainty, and has taken the company in the right way.
He and his team found much success in moving applications like Office to the cloud, and creating business around it, so Microsoft can compete with the likes of AWS and other top players in the cloud market. In many ways, cloud computing represents one of the biggest technological shifts that Microsoft has had in years, and has proved to be a huge revenue generator for the company.
Probably the good news for Microsoft and its investors is that other aspects of its business also brought in some revenue for the company. Microsoft Office business, for example, showed strong growth as revenue rose by ten percent to $7.4 billion, though much of it came in the form of online subscriptions to Office 365. Surprisingly, its older Windows software business did well too. In fact, there was a five percent increase in revenue from Windows operating system. Also, revenue from Microsoft’s corporate customers also saw an increase of five percent.
In all, Microsoft has done well over the last quarter and it expects to have a good first quarter in 2017 too.