Microsoft shares soar in after-hours trading as cloud business flies above estimates

(Reuters) — Microsoft reported adjusted revenue and profit that blew past analysts’ estimates on Thursday, as soaring sales from its cloud business pushed the technology giant’s shares to an all-time high.

The news underscores the dramatic yet still early shift of businesses switching to cloud services after long relying on software programs and other hardware.

Shares of Microsoft rose 6.1 percent to $60.73 in after-hours trading, adding more than $27 billion to its market value.

The Redmond, Washington-based company said revenue from its flagship cloud product Azure, which businesses can use to host their websites, apps or data, rose 116 percent.

“There’s a huge runway for them to show growth,” said Trip Chowdhry, managing director of Global Equities Research, noting the market for cloud services will be controlled almost entirely by Microsoft and larger rival Amazon.com Inc.

Early investment in the cloud, coupled with machine learning and applications that can scale at different levels, have set those companies apart from smaller rivals – and precipitated the decline of older software companies, Chowdhry said.

“Microsoft is uniquely positioned for the hybrid cloud world… because they can move (from the) data center all the way up into the public cloud with Azure,” said Shannon Cross of Cross Research.

Revenue from Microsoft’s broader “Intelligent Cloud” business rose 8.3 percent to $6.38 billion, topping analysts’ average estimate of $6.27 billion, according to research firm FactSet StreetAccount.

Chief Executive Satya Nadella has focused the company on cloud services and mobile applications as growth has slowed in its traditional software business. Earlier this year, Nadella made headlines when he orchestrated Microsoft’s biggest-ever deal, agreeing in June to buy the social network for professionals LinkedIn Corp for $26.2 billion.

However, the cloud’s blockbuster results masked dips in sales for other units of the company.

Worldwide PC shipments fell 3.9 percent in the quarter ended Sept. 30, according to research firm IDC, although that was much less than the 7.1 percent it had previously estimated.

Revenue in the unit that includes Windows software and the company’s struggling mobile business fell 1.8 percent to $9.29 billion.

The decline in Lumia smartphone sales was a “blemish,” said Patrick Moorhead of Moor Insights & Strategy, albeit an expected one.

“At some point that Windows number needs to start to rise, but given market declines, it’s hard to expect that,” he said.

Net income fell 4 percent to $4.69 billion from a year earlier.

Including deferred revenue from Windows 10, Microsoft earned 76 cents per share, beating analysts’ average estimate of 68 cents, according to Thomson Reuters I/B/E/S.

On an adjusted basis, Microsoft reported revenue of $22.33 billion, above the average estimate of $21.71 billion.

(Reporting by Anya George Tharakan in Bengaluru and Jeffrey Dastin in New York; Editing by Don Sebastian, Bernard Orr)