Microsoft’s cloud could be a bit foggy for the next quarter

October 28, 2020, 12:24 AM UTC

Microsoft reported strong sales growth during its most recent quarter, but a weaker-than-expected guidance for the current quarter muted investor enthusiasm.

The business technology giant said on Tuesday that its sales grew 12% year-over-year to $37.2 billion in the quarter ending Sep. 30. The company said its profits grew 30% to $13.9 billion during the same period.

However, Microsoft said that it would have $39.5 billion to $40.4 billion in sales in its current quarter, which was below analyst estimates of $40.43 billion. 

As a result, Microsoft shares fell nearly 2% in after-hours trading to $209.10. Microsoft shares have gained nearly 48% over the past year.

In a conference call with analysts, Microsoft executives downplayed the idea that the disappointing guidance signals that companies are spending less on IT services during the coronavirus pandemic. Instead, Microsoft chief financial officer Amy Hood attributed the slower-than-expected growth to big unspecified Azure cloud computing contracts that will take take time to close and that it would therefore be difficult to factor them into a prediction of future sales. 

Nevertheless, analysts on the conference call were generally unconcerned about the weaker-than-expected guidance and instead were excited about Microsoft’s strong financial performance during a time of economic instability.

Microsoft’s Azure cloud computing business grew 48% year-over-year from an unspecified base, which pleased the analysts, who consider that business core to the company’s future. 

Piper Sandler analyst Brent Bracelin, for instance, mentioned twice during a question on the call that he suspected Azure’s sales have, for the first time, exceeded those of Microsoft’s once core Windows operating system software. Bracelin considered this to be an “important milestone” for the company.

But the Microsoft executives ignored that portion of the analyst’s question, and instead explained why they believed all of Microsoft’s products are useful to companies looking to upgrade their digital infrastructure. 

“We are still in early innings,” Nadella said about cloud computing adoption among companies.

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