Microsoft‘s earnings have exceeded $100bn for the first time this fiscal year, beating Wall Street analyst expectations.
The tech giant released its earnings for the fourth quarter of 2018, which ended 30 June, revealing growth in various areas of the business.
Revenue for the last three months was $30.1bn, or $1.14 per share, an increase of 17% year over year, and a net income increase of 35%, suggesting that the company’s increased focus on cloud services is paying off. This brings the total revenue for fiscal year 2018 to $110.4bn.
Microsoft shares were up 4% following the results.
In a statement, Microsoft CEO Satya Nadella attributed the earnings to the company’s investment in cloud software:
“We had an incredible year, surpassing $100bn in revenue as a result of our teams’ relentless focus on customer success and the trust customers are placing in Microsoft. Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation.”
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Microsoft’s earnings have been driven by Azure cloud services
Microsoft’s Azure cloud computing services had revenue growth of 89% during the quarter, with server products and cloud services revenue as a whole increasing by 26%. Revenue in Intelligent Cloud, the company’s fasted-growing segment, was $9.6bn and increased 23%.
The company attributed this to an increased volume of multi-year agreements and the mix of products that carry higher in-quarter revenue recognition.
According to Reuters, much of Microsoft’s recent growth has been fuelled by companies wanting to shift their workloads to the cloud to cut data storage and software costs.
This follows the news that Microsoft and Walmart have signed a five-year deal for the retailer to use Azure cloud services. The company has also recently entered a collaboration to modernise Campbell Soup Company’s information technology platform through the Azure cloud. Such deals signify that Azure is a strong competitor to Amazon Web Services.
Executive vice-president and chief financial officer of Microsoft Amy Hood said:
“Exceptional sales execution delivered double-digit revenue growth across all segments and strong progress against our strategic priorities, anchored by commercial cloud revenue growing 53% year-over-year to $6.9bn.”
This suggests that the company’s decision to focus on cloud computing rather than PC software is driving an increase in Microsoft’s earnings.
Sales of Microsoft Surface, a series of touchscreen Windows personal computers and interactive whiteboards, also contributed to the growth. Surface’s revenue has risen 25% year over year, driven by “strong performance of the latest editions of Surface against a low prior year comparable”.
This suggests that Microsoft may be benefitting from a global rise in PC sales, with shipments in the second quarter of 2018 seeing the biggest growth since 2012, according to research by Gartner. This has been attributed to a rise in corporate rather than consumer sales.
However, Microsoft’s hardware division is still unable to reach the top five vendors in the world, with a poorer performance last year leading some to predict that the company may ditch its Surface unit in 2019.
Earlier this month, Microsoft launched the most recent product in the Surface series, the Surface Go. A smaller and cheaper Windows 10 tablet, it will be available to buy in August.
Gaming revenue increased 39%, with Xbox software and services revenue growth of 36%.
This has been attributed to “third-party title strength”, most likely due to the success of battle royale shooter Fortnite and the fact that Microsoft receives a 30% cut of all sales made through the Xbox digital store.
At its E3 press conference last month, Microsoft announced that it was planning to launch its own cloud-based game streaming service. The company also recently revealed that it was set to launch “all new X-Box bundles and accessories” in the near future.