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Microsoft’s Focus on Stealing Amazon’s Cloud Thunder Pays Off in Profits

Microsoft reported profit and sales that topped analysts’ estimates as the software maker racked up several new cloud-computing deals and agreements from previous years began to pay off.

Net income was $8.8 billion, or $1.14 a share, for the quarter that ended March 31, the Redmond, Wash.-based company said Wednesday in a statement. That compares with a $1 average estimate of analysts polled by Bloomberg. Sales rose 14% from a year earlier to $30.6 billion. Analysts projected $29.9 billion.

The fiscal third quarter featured a flurry of large brands, particularly in retail, signing agreements to use Microsoft’s Azure cloud software. Clients included grocer Kroger, Walgreens Boot Alliance, and oil company Exxon Mobile Corp. Some, such as Walgreens, also committed to using cloud-based Office and security software. The deals reflect Chief Executive Officer Satya Nadella’s efforts to draw some customers away from cloud market leader Amazon.com and ink more significant clients. Microsoft also is benefiting as more traditional companies that are longtime customers move to the cloud.

“We’re seeing Microsoft disproportionally benefit in this phase of cloud adoption,” said Dan Ives, an analyst at Wedbush Securities. “These are enterprises who have been core Microsoft shops for the last 30 years.”

Azure cloud-services revenue rose 73%, slower than the 76% Microsoft posted in the fiscal second quarter. Some investors have been concerned that while Azure is still growing rapidly, those increases have slowed from the past when doubling was a regular occurrence. Sales of Office cloud software to business customers rose 30%.

The company’s shares rose about 2% on the results, after closing at $125.01 in New York. Microsoft shares have gained 23% this year, topping the 17% increase in the S&P 500 Index. The software maker, for a time, leapfrogged Apple to become the most valuable publicly traded U.S. company by market capitalization.