MSFT Microsoft Corporation

By Aaron Tilley 

Microsoft Corp. posted record quarterly sales underpinned by pandemic-fueled demand for videogaming and accelerated adoption of its cloud-computing services.

The software giant Tuesday said fiscal second-quarter net income rose more than 30% to $15.5 billion. Sales advanced 17% to $43.1 billion. Wall Street expected sales of $40.2 billion and net income of $12.6 billion, according to FactSet.

The remote work era has been a boon for Microsoft. In addition to its videogaming and cloud-computing products, the company has seen strong sales for its Surface laptops as people bought devices to work remotely and enable distance learning. And use of Microsoft's Teams workplace collaboration software that includes text chat and videoconferencing, and has been a priority for Chief Executive Satya Nadella, has jumped during the pandemic. Microsoft shares have risen more than 37% over the past year.

"What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry," Mr. Nadella said.

Microsoft shares rose more than 5% in after-hours trading.

Mr. Nadella's bet on cloud computing has been pivotal to Microsoft's multiyear run of year-over-year sales increases. Sales for the company's Azure cloud-services have expanded rapidly; however, before the pandemic hit the pace of growth was slowing as the business gained scale. The remote work era arrested that decline. Azure sales increased 50% in the most recent quarter, up from 48% expansion in the prior three-month period.

Azure became a bigger source of revenue for Microsoft than its Windows operating system licenses in the September quarter, said Brent Bracelin, an analyst at Piper Sandler. Microsoft doesn't break out Azure revenue, but the company is the world's second-largest cloud-computing vendor after Amazon.com Inc.

The role of videogaming in Microsoft's fortunes also has increased under Mr. Nadella, in part fueled by acquisitions. The company last year bought ZeniMax Media Inc., the parent company of the popular Doom videogame franchise, for $7.5 billion. Xbox content and services revenue increased 40% in the latest quarter, aided by the November release of two new gaming consoles, Xbox Series X and S, to battle Sony Corp.'s PlayStation 5.

For Microsoft, the consoles, a relatively low margin business, are less important to its bottom line than hooking gamers on subscription services for its games. But the company last week misstepped when it tried to push through a price hike for some of those services. Customers revolted, and the software giant reversed course hours later.

The business software market, core to Microsoft, also is becoming more heated. Business software vendor Salesforce.com Inc. last month said it would spend around $27.7 billion to buy Slack Technologies Inc., maker of a popular chat-based workplace collaboration platform. With Slack, Salesforce is looking to more aggressively go after a core business of Microsoft. The deal is expected to close in the coming months.

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Write to Aaron Tilley at aaron.tilley@wsj.com

(END) Dow Jones Newswires

January 26, 2021 16:35 ET (21:35 GMT)

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