Cloud computing helps Microsoft increase revenues by 14 per cent in first quarter results

Strongly rising cloud and services revenues - including from LinkedIn - more than offset lower product sales

Microsoft has reported revenues up 14 per cent in its first quarter to the end of September, attributing the strong revenue rise to demand for cloud computing services.

Revenues increased to $33.06 billion in the three months to the end of September, compared to $29.01 billion in the same period in 2018.

While product revenues fell by almost $2 billion, the slack was more than taken up by a rise in services revenues, which also includes the Microsoft 365 and Azure cloud services. Net income before tax rose from $10.22 billion to $12.69 billion. However, cashflow before activities such stock buybacks was broadly flat.

Renewals were good, recapture rates were good, and new business was good

CEO Satya Nadella described the results as a "strong start" to fiscal 2020, with chief financial officer Amy Hood pointing out, in an earnings call with financial analysts, that revenues in Microsoft's Intelligent Cloud segment increased by 27 per cent to $10.8 billion.

Nadella added: "Our commercial cloud business continues to grow at scale as we work alongside the world's leading companies to help them build their own digital capability.

"Microsoft provides a differentiated technology stack - spanning application infrastructure, data and AI, developer tools and services, security & compliance, business process, productivity and collaboration."

Microsoft Teams, the company's answer to Slack, "continues to gain traction", according to Nadella, with more than 350 organisations now claiming more than 10,000 users of Teams.

"More broadly, all this innovation is fueling growth. Office 365 commercial monthly active users surpassed 200 million this quarter. And leading organizations like Cerner, Chevron, and The LEGO Group, are choosing our premium Microsoft 365 E5 offerings for their advanced security and productivity," he said during an earnings call with financial analysts.

Nadella also highlighted services growth in the company's LinkedIn unit. "Marketing Solutions remains our fastest growing segment, up 44 percent year-over-year as marketers leverage our community-building tools to connect with LinkedIn's nearly 660 million members," said Nadella. According to Hood, LinkedIn's revenues increased by 25 per cent.

However, sales of Surface hardware declined by four per cent, which Hood attributed to "product lifecycle transitions" and gaming revenues fell by seven per cent, due to lower console sales driven by anticipation of new Xbox (and Sony Playstation) consoles coming out in 2020.

"Overall, the first quarter was a very strong start commercially from a bookings perspective, with some very strong trends across the board," said Hood in response to analyst questioning.

She also referenced "both the absolute size and number of the Azure commitments… the consumption growth rates of Azure, the commitments we're seeing to Microsoft 365, [and] some of the signs we're seeing across Dynamics, the Power Platform, the workflow cloud… and LinkedIn."

She added: "It's a good bookings quarter, a good execution quarter on overall contracting value. Renewals were good, recapture rates were good, and new business was good."