Microsoft Beats Estimates but Takes Tax-Related Charge

Microsoft Corp beat Wall Street’s profit estimates on Wednesday, boosted by a strong performance in its cloud computing business, but took a hefty tax charge related to the recent US tax changes.

The company reported adjusted earnings of 96 cents per share, about 10 cents ahead of the 86 cents forecasted by Wall Street, according to sources.

The 2nd quarter of its 2018 financial results reported revenue of $28.9 billion and net income of $7.5 billion.

As a result of recent changes to the US tax code, Microsoft took a $13.8 billion one-time accounting charge for the company in the quarter. The tax charge resulted to a net loss of $6.30 billion, or 82 cents per share, in the quarter ended December 31, compared to a profit of $6.27 billion, or 80 cents per share a year earlier.

Overall, Microsoft’s revenue rose 12% year-over-year. Its biggest business segment, More Personal Computing, which includes Windows devices, gaming, and search advertising, rose 2%, with $12.17 billion in revenue. It was well above the analysts’ estimate of $12.02 billion in revenue for More Personal Computing.

Revenue from the company’s intelligent cloud segment grew 15.3% to $7.8 billion in the company’s fiscal 2nd quarter, including 98% growth for Azure.

Amazon Web Services was the leader of the $14.4 billion cloud computing market with more than 31.8% market share, while Azure has been growing fast and holds the second position with 13.9% of the market, according to research firm Canalys on its 2017 3rd quarter estimates.

“This quarter’s results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice,” said Satya Nadella, chief executive officer of Microsoft. “Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth.”

Gaming revenue grew 8%, driven by the new availability of Microsoft’s Xbox One X gaming console. Revenue in the Surface Hardware business, however, was only up 1% from the same quarter a year ago despite the availability of new laptops and tablets during the holiday season.

The Productivity and Business Processes segment, including Office, Dynamics, and LinkedIn, gained 25% with a revenue of $8.95 billion, higher than the $8.86 billion forecast by analysts.

Under Nadella, Microsoft has been recently focusing more on cloud-based services as PC shipments continue to slow. In addition to that, Nadella said that Microsoft is still in the early days of cloud growth.

“We’re in the very, very early innings of essentially this new cloud growth,” said Nadella. “And there’s only going to be increasing demand as there’s more digitization of every city, every factory, every hospital and so on. So I think we have a long way to go to still fill up.”

Microsoft shares closed trading at $95.01, up $2.27 or 2.45% on the Nasdaq. In after-hours trading, its shares were up 0.20% to $95.20.

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