Microsoft’s transition from software to cloud services pays off in a big way
Microsoft has shifted focus to the cloud and it seems that it is taking the lead. According to the company, sales doubled in the first quarter, due to the cloud, propelling earnings above analysts’ estimates. This sent Microsoft shares to an all-time high, breaking past a level hit in 1999 at the peak of the tech stock bubble.
The company’s shares have doubled since August 2013 with Chief Executive Satya Nadella. Microsoft chose to focus on mobile and cloud computing rather than PCs. And the strategy paid off. even though Microsoft has a fierce competitor in the cloud area. Even though Microsoft reached a new business peak, Amazon.com Inc is still in control of the fledgling market. This spectacular jump shows how much a change in strategy can bring outstanding results, even though this means leaving once critical software programs and other hardware in the dust.
According to the scores, Microsoft shares reached a peak rising with 6.2 percent, therefore reaching $60.79. They later pared gains to $60.43, still adding nearly $25 billion to its market value. The company said that the sales of their cloud product, Azure, rose with 116 percent. Revenue for its broader “Intelligent Cloud” business rose 8.3 percent to $6.38 billion, beating analysts’ average estimate of $6.27 billion, according to research firm FactSet StreetAccount. “We are not just building or moving (clients’) IT,” Nadella said on an analyst call. Customers “are building new digital services for hyper scale. And that’s what is probably unique in terms of what has changed year over year for us.
“It’s not just the Silicon Valley startups anymore; it is the core enterprise that is also becoming a digital company. And we are well-positioned to serve them,” he said. The company forecast that sales for its Intelligent Cloud business will be between $6.55 billion and $6.75 billion in the current quarter, compared with $6.34 billion in the same period a year earlier.
“There’s a huge runway for them to show growth,” said Trip Chowdhry, managing director of Global Equities Research.
Early investment in the cloud, coupled with machine learning and applications that can scale at different levels, have set Microsoft and Amazon Web Services apart from smaller rivals – and precipitated the decline of older software companies, Chowdhry said. Microsoft had an effective monopoly on computing software in the 1990s and was for some time the world’s most valuable publicly traded company.