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Microsoft earnings up as cloud business continues its expansion

Microsoft reported better-than-expected earnings and revenue for the three months ending in December, easily beating analysts’ estimates and sending its stock up 3% in after-hours trading Wednesday.

“We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success,” CEO Satya Nadella said in a release.

Sales at Microsoft grew 14% from the prior year to $36.9 billion in the quarter, the company reported Wednesday. Adjusted net income was also up sharply — growing 36% to $11.6 billion. The strong performance in the quarter was helped by the continued growth streak in Microsoft’s cloud business.

Revenue from the intelligent cloud division beat Wall Street analysts’ projections and hit $11.9 billion in the three months, driven by 62% growth in Microsoft’s key Azure cloud business.

Growing the cloud business — and competing with industry incumbent Amazon Web Services — has been a leading priority at Microsoft. Sales at Azure have been slowing slightly in recent quarters, though less so than at AWS. However, Nucleus Research analyst Andrew MacMillen said the trend is not concerning as the cloud market becomes more highly penetrated.

“It’s now finally getting to a saturation point, where it’s less about who can capture more market share than who can create more use cases,” MacMillen said.

Microsoft could have a leg up in that area, thanks to its focus on artificial intelligence and augmented reality, as well as its enterprise offerings.

The company’s productivity and business processes segment was up 17% in the quarter, thanks to strong growth in Office 365 and Dynamics 365. MacMillen said that expansion may be a sign that Microsoft is gaining brand recognition in the enterprise services space, where it competes with the likes of Oracle and Salesforce.

Microsoft is “one of the few that can really marry the two: cloud hosting and all this machine learning and artificial intelligence … with comprehensive and end user-accessible technologies” for business customers, such as customer relationship management and supply chain management software, MacMillen said.

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