Microsoft Rides Cloud Adoption Wave in Second Quarter – Investopedia

In its second quarter earnings release, Microsoft Corporation (MSFT) reported a 32% year-over-year increase in its cloud business segment. Microsoft’s cloud business, Azure, is a public cloud computing service that allows organizations to avoid the expensive option of having their own IT resources on their premises while also bringing the benefit of allowing such organizations to scale rapidly—all through a cost-effective subscription model.

While competing with more well-established cloud services such as Amazon.com, Inc.’s (AMZN) Amazon Web Services, Azure’s proprietary technology and remote cloud hosting capabilities combined with open technologies that allow Linux applications through virtual machines offer a flexibility that has drawn several Fortune 500 companies.

Due to the pandemic and increased demand for services-at-home, Microsoft’s gaming segment (Xbox), productivity suite, and Azure (on which Microsoft Teams operates) grew significantly. The company reported revenues of $51.7 billion, an increase of 20% from the corresponding period in 2020. Operating income of $22.2 billion also increased by 24% from the same period the previous year.

Key Takeaways

  • Microsoft reported revenues of $51.7 billion in its second quarter, backed by growth in its cloud computing, gaming, and productivity business segments.
  • The pandemic and the related demand for working and learning from home have been driving up revenues for Microsoft.
  • Competition from other leaders in cloud computing may hamper growth even as overall consumer adoption grows.

Segment Breakdown of Revenues

Microsoft reported 19% year-over-year growth in its Office 365 commercial product. Subscriptions to Microsoft 365 grew to 56.4 million during the quarter. Revenue from LinkedIn grew 37%.

In the personal computing segment, revenue from Windows original equipment manufacturers (OEM) increased 25%, while Windows commercial products and cloud services increased 13%. Revenues from Xbox content sales and service increased 10%, despite an interim shortage of chips, while revenues from the sale of Surface devices increased 8%.

Microsoft also undertook plans to repurchase its shares and paid dividends to shareholders of record amounting to $10.9 billion. This was an increase of 9% from the second quarter of 2021.

Shares of Microsoft were up by 6.9% as the company beat analysts’ estimates in several of its revenue segments. The company also plans to acquire Activision Blizzard, Inc. (ATVI), the game publisher, for $68.7 billion, a move that is being interpreted as Microsoft’s foray into the metaverse.

The latest quarterly report follows very strong results that Microsoft has been reporting since the onset of the pandemic. The adoption of the cloud and the ongoing demand for gaming consoles and work-from-home productivity tools and software are expected to continue to spur growth even as Microsoft faces competition from other tech leaders, particularly in the cloud computing space where Amazon and Alphabet Inc. (GOOGL) offer Amazon Web Services and Google Cloud.