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Microsoft stock rises as cloud business continues to grow

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Microsoft stock rises as cloud business continues to grow

MicrosoftCorp.'s stock jumped roughly 4% in after-hours trading after thecompany beat expectations with its 2016 fiscal-fourth quarter results on theback of its cloud computing segment.

For the quarter ended June 30, revenue for the company came in at$20.61 billion, down from $22.18 billion in the comparable 2015 quarter.Non-GAAP revenue was $22.64 billion for the just-ended quarter, up 2% from$22.18 billion a year ago.

Net income for the quarter was $3.12 billion, or 39 cents pershare, compared to a year-ago loss of $3.20 billion, or 40 cents per share.Non-GAAP net income for the quarter was $5.48 billion, or 69 cents per share,up from $5.07 billion, or 62 cents per share, in the comparable 2015 quarter.

The S&P Capital IQ consensus normalized EPS estimate for thejust-ended quarter was 58 cents. On a GAAP basis, the consensus EPS estimatewas 44 cents.

The company saw revenue growth in its cloud computing segments,while hardware revenue decreased as expected, largely due to the company paringdown its phone business.

"[B]usinesses will not just use digital technologies but theywill become digital companies.This generates enormous opportunity for Microsoft andour partners," CEO Satya Nadella said during the company's July 19earnings conference call.

Looking at its segments, Intelligent Cloud saw the most growth inthe quarter with a 7% year-over-year, driven by revenue server products, cloudservices and Enterprise Services. Azure revenue grew by 102%, with Azurecompute usage more than doubling year over year and Nadella characterized thesegment as "an area of massive opportunity" for the company as itlooks to compete with Amazon.comInc. for cloud computing.

The company saw a 5% year-over-year growth in its Productivity andBusiness Processes segment, driven by higher revenue from Office 365.Unfavorable headwinds impacted revenue by 3%. Increased subscriptions drove thesegment, with Office Commercial revenue jumping by 5% and Office Consumerrevenue leaping by 19%.

But it was not all growth as the company saw a 4% year-over-yeardecline in its More Personal Computing segment. While gaming revenue declined9% year-over-year, Nadella said Xbox Live monthly active users jumped 33% yearover year to 49 million, marking a record high.

The More Personal Computing segment also saw a 35% year-over-yeardrop in Devices revenue from decreasing phone sales, part of the company's largershift away from phones. In May, the company dealt away its entry-level feature phone businessfor $350 million, one of the recent wind-downs of Microsoft's business. Phone revenuesaw an $870 million year-over-year decrease, a 71% change, because of areduction in phone sales. For the quarter, the company recorded $630 million inasset impairment charges from the phone business and $480 million inrestructuring charges stemming from the phone business restructure plan.Microsoft's fiscal fourth-quarter 2015 financial results the impact of a $7.5 billionnoncash impairment charge related to the Nokia Devices and Services business, arestructuring charge of $780 million and a $160 million charge related tointegration and restructuring.

For full 2016 fiscal year, Microsoft reported $85.32 billion innet revenue, marking a 9% year-over-year decline from the $93.58 billion inprevious fiscal year. For non-GAAP revenue, the company reported $91.96 billionfor the fiscal year, down 2% year over year.

The company reported full-year net income of $16.80 billion, or$2.10 per share, up from the $12.19 billion, $1.48 per share, in the prioryear. By non-GAAP measures, the company reported $22.33 billion in net income,or $2.79 per share, compared to $21.69 billion, or $2.63 per share, a year ago.

The S&P Capital IQ consensus normalized EPSestimate for the just-ended fiscal year was $2.67. On a GAAP basis, theconsensus EPS estimate was $2.12.

Looking to the next quarter, CFO Amy Hood saidthe company expects revenue of $8.7 billion to $9 billion for More PersonalComputing, $6.1 billion to $6.3 billion for Intelligent Cloud and $6.4 to $6.6billion for Productivity and Business Processes.

For the 2017 fiscal year, Hood forecast $31.1billion to $31.4 billion in operating expenses. The foreign exchange impact isexpected to lessen throughout the year if current rates are stable. Thatprojection does not include LinkedIn Corp., which Microsoft to for $26.2 billion in June. Hoodsaid that acquisition is expected to close in the second quarter of the 2017fiscal year.

"The fundamentals of our commercial business remain strongand we anticipate that cloud services and healthy renewals will continue todrive high annuity mix," Hood said on the call.