According to the news report by Reuters, while Microsoft Corp. matched Wall Street’s estimates on its quarterly earnings results as well as forecast, its cloud computing business Azure showed that revenue growth had slowed down as compared to the same time a year earlier.
Microsoft’s shares, which are one of the most valuable in the United States, dropped by 3% in after-hours trading despite the fact that the company’s EPS (earnings per share) marginally beat analyst expectations. During the regular trading hours, the company’s shares gained 3.3% thanks to a broader technology rally.
The technology giant’s flagship cloud business Azure grew by 76% in the fourth quarter, however, in the previous year’s fourth quarter, the business had grown by 98%. The business unit saw a revenue growth of 76% for the third quarter of 2018 also.
Microsoft has been long famous for its Windows software, but now, the company has changed its focus to the nascent cloud computing segment where it is fighting for dominance against Amazon.com Inc. Amazon is currently the market leader in cloud-based services.
Microsoft’s Azure is quickly taking on business, especially from the retail industry, which is struggling to keep up with Amazon’s continuously expanding e-commerce business. In January alone, Microsoft announced that it had made deals with Kroger Co. and Walgreens Boots Alliance Inc. These deals come after the technology giant revealed that it had struck a 5-year deal with Walmart Inc. in the summer of last year.
The company’s Chief Executive Officer Satya Nadella stated that Azure’s strong cloud results reflected its deep as well as growing partnerships with market leaders from various industries such as healthcare, financial services and retail.
Unfortunately, investors have become accustomed to blockbuster earnings shooting past market estimates thanks to businesses across the globe replacing their internal data centers in favor of the cloud.
Cross Research’s Shannon Cross said that it was not a spectacular quarter, which is what is causing the company’s stocks to decline.
Microsoft also forecast its revenue for the first quarter of 2019, saying it was expecting it to be in the range of $29.4 billion to $30.1 billion. Market analysts’ expectations for the company’s revenues are at $29.9 billion.
The technology major also stated that the stronger US dollar would also impact its cloud computing businesses, which comprise of Azure as well as other products, by about 2%.
Microsoft has also focused on international markets to grow its cloud businesses, and now, according to the research firm Canalys, the company owns 17% of the market. Amazon, on the other hand, as the market leader, has grabbed 32% of the cloud market.
To narrow the gap between Amazon and itself, Microsoft is investing heavily on cloud-based technologies. Research and development costs have gone up to $4.1 billion in its fourth quarter, vis-à-vis the $3.5 billion one year ago.
Wedbush Securities analyst Daniel Ives stated that the company was clearly aggressively spending to strengthen its cloud business. Ives said that while this was a good move, it also capped the upper limits on margins for this quarter.
The company’s revenue went up to $32.47 billion, a 12.3% increase. The market expectation had been that revenue would be at $32.51 billion.
Microsoft’s productivity software unit saw a growth in revenue of 13% to $10.1 billion. This growth was pushed up by strong revenues generated by the company’s LinkedIn and Office 365 divisions. The company beat Wall Street’s expectation of $10.09 billion.
The company also reported a $8.42 billion profit. And after removing one-time items, Microsoft’s EPS was $1.10 per share, vis-à-vis the market expectation of $1.09 per share.