Microsoft Earnings Rose Last Quarter With Demand for Cloud Services

Microsoft shares rose more than 6% in after-hours trading after it unveiled a strong outlook on sales for the current quarter.

Through the pandemic, Microsoft and other business-software companies experienced booming stock prices and sales as organizations around the world used more digital tools to help with remote working. This has bolstered demand for Microsoft’s office applications as well as its cloud-infrastructure services.

Microsoft remains the second-largest cloud-infrastructure vendor behind

Amazon.com Inc.,

AMZN -4.58%

but the company has been gaining market share by using its leadership in office applications as leverage to grab big deals for its Azure cloud. It had nearly 20% of the market in 2020, according to research firm

Gartner Inc.

—well behind Amazon Web Services’ 40%, but up from 7% in 2016.

The company’s overall cloud business was up 32% with $23.4 billion in sales as its rival to Amazon cloud infrastructure service grew 46%.

Analysts and investors have been looking for signs that demand is cooling. Software shares have been sliding this year, with Microsoft down around 20%, in line with the Nasdaq Composite Index.

Results were largely in line with expectations. There were concerns that a slowdown might be on the horizon after the previous quarterly earnings were reported in January because the growth of Microsoft’s cloud service Azure for that quarter hadn’t been as strong as expected. Growth seems to be back on track now, analysts said, showing companies continue to spend on cloud services.

“This is a good bellwether for the rest of software,” said

Rishi Jaluria,

an analyst with RBC Capital Markets. “There’s no big slowdown in the spending environment.”

Microsoft is showing little sign of slowdown despite the war in Ukraine, inflation and other factors that have been hurting growth in many industries. The company expects its sales for the current quarter to be between $52.4 billion and $53.2 billion. Analysts had been expecting sales of around $52.8 billion for the quarter, according to FactSet.

Microsoft Chief Financial Officer Amy Hood said the war in Ukraine is expected to have around a $110 million sales impact on the company in the current quarter.

Microsoft’s cloud-market push has come under criticism in Europe, where rivals have filed antitrust complaints. Last summer, French company OVHcloud filed one over licensing terms that it says make Microsoft products more expensive to use on non-Microsoft clouds.

A Microsoft spokesman said in response to the complaint that it is continuously evaluating how it can best work with partners.

Microsoft has had a busy year. In January, it announced its biggest-ever acquisition with its $75 billion offer for

Activision Blizzard Inc.,

developer of such popular videogame franchises as Call of Duty, World of Warcraft and Candy Crush. The deal is expected to bolster Microsoft’s Game Pass subscription service, which offers a library of games for a monthly fee.

The videogame arm generated close to 10% of Microsoft’s revenue in 2021. The company is trying to build it into another core business, by using its cloud infrastructure to take the lead in an emerging cloud-gaming sector.

Microsoft’s total gaming revenue grew 6% for the quarter, while its Xbox content and services sales advanced 4%. Its console sales for the quarter increased 14%.

Microsoft has seen a surge in usage of its subscription service after adding new games, said Satya Nadella, chief executive at Microsoft. He said the number of hours played had jumped 45% from a year ago.

Microsoft doesn’t expect the Activision deal, being reviewed by the U.S. Federal Trade Commission, to close until next year. New Chairwoman

Lina Khan

has taken steps to increase scrutiny of deals. If it does close, Microsoft said it would become the third-largest gaming company by sales, with 30 game studios under its management.

Write to Aaron Tilley at [email protected]