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Amazon, Microsoft Get Profit From Cloud as Nasdaq Reaches Record

©2015 Bloomberg News
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(Bloomberg) — Minutes after the Nasdaq Composite closed at a record, three of the biggest bellwethers in technology reminded the market precisely why investors are so bullish on companies that do business through the Web. Amazon.com Inc. for the first time broke out sales from its division that sells computing power and software via the Internet, reporting a 49 percent jump last quarter. Microsoft Corp. posted profit that topped analysts’ estimates, also underscoring healthy demand for software delivered through the cloud. Google Inc. benefited from rising volume of online ads. The numbers are a testament not only to the endurance of the Internet as a conduit of commerce and information, but also to the ways it has revolutionized how the world’s biggest corporations operate. All three companies have been at the heart of these changes since the Web’s inception as a business tool, and are now vying for a bigger slice of the still-fledgling market for cloud computing. Google is seeking to extend its lead in online search and advertising, Amazon is spending billions of dollars to expand in e-commerce and data centers, and Microsoft is building on its dominance of the business-software market. “We are innings one or two of the cloud,” said Kim Forrest, an analyst at Fort Pitt Capital Group Inc., which oversees about $1.8 billion in Pittsburgh. The Nasdaq Composite climbed 0.4 percent on Thursday to the highest level in 15 years, topping its dot-com era high.

Amazon’s Growth

“Right now people feel good about technology,” said Sarah Kunst, a partner at Fortis Partners, an executive search firm. “We’re starting to believe in Elon Musk and moonshots, and we feel that technology can do anything.” Amazon shares jumped as much as 8 percent in extended trading after the company reported first-quarter sales that beat analysts’ estimates. Chief Executive Officer Jeff Bezos has been investing in speedy delivery services, data centers and original video programming to woo customers and to keep those users spending more time on the site. Sales jumped 15 percent to $22.7 billion, the company said Thursday in a statement. Analysts on average projected $22.4 billion, according to data compiled by Bloomberg. Revenue from Amazon Web Services, which provides data storage and computing power to other businesses, surged to $1.57 billion. AWS helps Amazon benefit from growth in traffic to the websites of other companies, including Pinterest Inc. and Netflix Inc. The unit generated first-quarter profit of $265 million, helping to make up for losses in other parts of the company’s business.
“Amazon has been stealthy,” Forrest said. “I didn’t think they were a technology company. I thought they were a retailer that used technology.” The Seattle-based company said it intends to keep investing in new businesses that will expand its reach with customers, including data centers, one-hour delivery in certain cities, and streaming video content.

Nadella’s Microsoft

Now in its second year under CEO Satya Nadella, Microsoft reported profit that exceeded analysts’ estimates as growth in cloud software sales and more expensive versions of server programs made up for slowing demand for personal-computer products. The stock gained 3.4 percent in late trading. Nadella, who took over in February 2014, has been shifting strategy at the world’s largest software maker to focus on cloud and mobile software, including products that work with rival offerings.
“They’ve got a growing cloud number that isn’t stopping,” said Mark Moerdler, an analyst with Sanford C. Bernstein & Co. who rates the shares the equivalent of a buy.
Profit, excluding costs related to restructuring and integration, was 62 cents a share on sales of $21.7 billion in the third quarter, which ended March 31, the Redmond, Washington-based company said Thursday. Analysts had estimated 53 cents on sales of $21.1 billion, according to data compiled by Bloomberg.

Search Leader

Google’s results showed that its strategy of stepping up investments to lure more users and advertisers is paying off, fueling gains in the number of ads it sold in the first quarter. While profit and sales came in just shy of estimates, costs were kept well under control, boosting investor confidence and sending Google’s shares up 3.5 percent in extended trading. CEO Larry Page is pouring money into new initiatives to make sure that people continue to use Google’s search, video and other Internet services instead of going to Facebook Inc., Amazon and other Web destinations. As a result, Google’s advertising volume grew 13 percent, making up for a 7 percent decline in ad prices.

Wireless Service

Google’s sales, minus revenue passed to partners, rose 14 percent to $13.9 billion in the first quarter, the company said in a statement Thursday. That compared with analysts’ average projection for $14 billion. Earlier this week, Google unveiled a new wireless service called Project Fi. The company also plans to offer a subscriber version of its YouTube video-sharing site as soon as this year, letting viewers see clips without having to sit through ads. The company also is trying to improve its search experience on smartphones, updating its search service to favor websites that are tailored to mobile devices.
“They still own the search business,” said Martin Pyykkonen, an analyst at Rosenblatt Securities Inc.

–With assistance from Ian King, Sarah Frier, Brian Womack and Spencer Soper in San Francisco and Dina Bass in Seattle.

To contact the reporter on this story: Tom Giles in San Francisco at tgiles5@bloomberg.net To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net Andrew Pollack

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Men of Value Contributor

Men of Value Contributor

Articles by various contributors to Men of Value, an online magazine for American men who value our Judeo-Christian values of faith, family, and freedom.

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