In recent days a few analysts indicated they were expecting an Azure growth slowdown. In a distributed to clients on Sunday Evercore ISI analysts led by Kirk Materne predicted 78 percent growth. Timothy Horan, senior analyst at Oppenheimer, attributed the slowdown to the law of large numbers. (Amazon’s cloud business is growing more slowly, at 49 percent in the second quarter on a larger base of $6.11 billion in revenue.)
“While this level of deceleration may seem overly cautious given the momentum behind Azure in the market, we believe it is instructive for investors to understand that much of this deceleration is due to the leveling off of growth for the company’s Enterprise Mobility & Security (EMS) products, which are seat based, vs. any major deceleration in the IaaS/PaaS offerings,” the Evercore analysts wrote.
Microsoft hasn’t disclosed how much revenue Azure brings in, but the Evercore analysts estimated that it generated more $7.74 billion in the 2018 fiscal year. At that size, Azure would have accounted for 7 percent of Microsoft’s total annual revenue.
The company’s biggest business segment, More Personal Computing — which includes Windows, devices, gaming and search ads — fetched $10.7 billion in revenue, up 15 percent. The segment came in above the FactSet consensus estimate of $10.18 billion.
The Productivity and Business Processes segment, which includes Office, Dynamics and LinkedIn, did $9.8 billion in revenue, which was up 19 percent and ahead of the FactSet consensus estimate of $9.39 billion. The company had 32.5 million Office 365 consumer subscribers in the fiscal first quarter, up sequentially from 31.4 million.
Microsoft’s Intelligent Cloud segment, containing server products and cloud services (including Azure) along with consulting and support, grew 24 percent with $8.6 billion in revenue. The results exceeded the $8.29 billion FactSet estimate. In the quarter Microsoft logged $4.3 billion in capital expenditures, up 59 percent year over year. Capital expenditures rose 33 percent in the 2018 fiscal year.
“No customer wants to be dependent on a provider that sells them technology on one end and competes with them on the other,” Microsoft CEO Satya Nadella said on the conference call.
Microsoft’s stock fell more than 5 percent ahead of the earnings release on Wednesday, in its worst day of trading since Oct. 10. The stock is down almost 11 percent in the past month, but it’s still up almost 20 percent since the beginning of the year.
In the fiscal first quarter, Microsoft acquired Lobe and introduced a free tier of its Teams app, and Nadella sold around 30 percent of his common stock.
CNBC’s Fred Imbert and Josh Lipton contributed to this report.
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