Microsoft Azure bounced back with increased revenues in the second quarter as it looks to close the gap with Amazon Web Services.
In Wednesday's second quarter earnings report, Azure's revenue grew to 62%, which was up over the 59% growth rate from the previous quarter, but down 76% from a year ago. Goldman Sachs estimated Azure's growth to be 58% in the second quarter.
As it competes with Amazon Web Services (AWS), Microsoft's success has been driven by large gains in its cloud computing services. Microsoft's cloud business includes Azure as well as cloud-based versions of Microsoft’s Office suite of software, but it doesn't break out specific revenue amounts for Azure like Amazon does with AWS.
Microsoft said its "Intelligent Cloud" business revenue increased by about 27% to $11.87 billion, which exceeded analysts' projections of $11.4 billion, according to FactSet.
In the second quarter, Microsoft won out over Amazon Web Services for the U.S. Department of Defense's 10-year, $10 billion Joint Enterprise Defense Infrastructure (JEDI) cloud contract. Earlier this month, Amazon filed a motion that seeks to pause Microsoft's work on the Pentagon's billion cloud contract until a court rules on its protest of how it was awarded.
Microsoft CEO Satya Nadella didn't mention the JEDI contract by name during Wednesday's earnings call, but did highlight Azure's growing momentum.
"Every customer will need a distributed computing fabric across the cloud and the edge to power their mission-critical workloads and meet regulatory as well as operational solvency needs," Nadella said, according to the Seeking Alpha transcript. We have more data center regions than any other cloud provider and will be the first to open in Israel and Qatar, expanding our footprint to 56 in total.
"Azure is the only cloud that offers consistency across operating models, development environments, and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment."
Overall, Microsoft posted revenue of $36.9 billion in the second quarter versus analysts' expectations of $35.68 billion. On a year-over-year basis, Microsoft's revenue increased by 14% for the quarter that ended Dec. 31. Earnings per share, minus certain items, came in at $1.51 in the second quarter, beating analysts' consensus estimate of $1.32 per share, according to Refinitiv.
Going forward, Microsoft expects third-quarter revenue to increase between 12% to 14% from a year earlier to $34.1 billion to $34.9 billion. Analysts polled by FactSet expect $34.11 billion.
Based largely on Azure cloud and the increased adoption of its Office 365 portfolio, Microsoft's revenues have grown 63% over the past year. Microsoft closed at $168.04 per share Wednesday night but was up to $172 per share late Thursday morning.