Microsoft's cloud business, which includes Azure and other cloud-based services, continued to be a money-making machine in its third quarter results.
Azure’s revenue increased by 73% in the third quarter, which was slightly down from the previous quarter, but there's plenty of room left for future growth as businesses continue to transition their servers and data storage to Azure's infrastructure.
Microsoft's “Intelligent Cloud” division, which includes Azure and other cloud- and server-based products, reported revenue of $9.7 billion, up 22% from the year-ago quarter, while server products and cloud services revenue increased 27%.
“Demand for our cloud offerings drove commercial cloud revenue to $9.6 billion this quarter, up 41% year-over-year,” said Amy Hood, executive vice president and chief financial officer of Microsoft, in a prepared statement. “We continue to drive growth in revenue and operating income with consistent execution from our sales teams and partners and targeted strategic investments.”
While it was an impressive showing for Azure, it still trails Amazon Web Services (AWS) by a significant margin. According to a February report by Synergy Research Group, Amazon Web Services increased its market share at the end of last year to the point where it is equivalent in size to the next four competitors combined. In order, Microsoft, Google, IBM and Alibaba held the top spots after AWS, according to Synergy Research Group.
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Microsoft and AWS are still in the running for the Defense Department's $10 billion JEDI (Joint Enterprise Defense Infrastructure) project. The sole winner of the contract will be announced in mid-July.
Driven by the cloud business, Microsoft's sales increased 14% in the third quarter while net income rose 19% to $8.8 billion. Gross margin, or the percentage of revenue left after accounting for the costs of goods sold, was 66.7%, up from 65.4% a year earlier.
Overall, Microsoft's third quarter revenue came in at $30.6 billion. According to Refinitiv, analysts had projected $29.84 billion. Microsoft's earnings, excluding certain items, was $1.14 per share versus $1.00 per share expected by analysts, according to Refinitiv.
Microsoft shares were up nearly 5% in after-hours trading on Wednesday. According to a story by Yahoo Finance, if Microsoft's stock hold its gains in Thursday’s trading, its market capitalization will be above $1 trillion.