Microsoft CEO Satya Nadella celebrates 'pivotal year' as Office 365, cloud make gains

Good day for Microsoft bulls
Good day for Microsoft bulls
Microsoft's cloud product sales double
Microsoft's cloud product sales double
Cloud biz helps Microsoft beat Street
Cloud biz helps Microsoft beat Street

Wall Street analysts are feeling better about Microsoft's stock following the company's fiscal fourth-quarter earnings results, which showed it was making progress in two key areas that investors care about: Intelligent Cloud and Office 365.

Microsoft stock traded up as much as 4.25 percent to $55.34 in after-hours trading on Tuesday after the company easily topped analysts' expectations.

"People were uncertain and maybe a little nervous going into this print, based on what happened last quarter," Scott Kessler, an analyst at S&P Global Market Intelligence, said. "There was nothing to really suggest that things would change so significantly."

Commercial revenue from Office 365 grew 54 percent (59 percent in constant currency) in the quarter, and cloud-computing plaform Azure had revenue growth of 102 percent (108 percent in constant currency), the company said.

"This past year was a pivotal one in both our transformation and in our partnership with customers who are also driving their own digital transformation," chief executive officer Satya Nadella said on a conference call with analysts.

Nadella said that Microsoft was focused on the new workloads and growth that came from its cloud offerings, which do more than the company's servers did.

Microsoft sets itself apart from rival Amazon Web Services by having better support for developers and options to customize applications around Azure, he said. There are now more than 27,000 applications across Office 365 and Dynamics 365. Microsoft's application stores will be a new way for developers to reach consumers, he said.

Nadella also highlighted the big name customers using Office 365, including Facebook, Hershey's and Discovery. Azure was also drawing high-profile customers, including General Electric, Boeing, SAP and Citrix, thanks to its international footprint, security and support, he said.

"Companies looking to digitally transform need a trusted cloud," said Nadella.

"Every conversation with have with customers is cloud-led," executive vice president and chief financial officer Amy Hood added. "What we're talking about now is really pivoting your business for the long term. I'm sure there are cases where that has lengthened the sales cycle, for good reason."

Hood said she felt good about Microsoft's cloud momentum and expected material improvement in the fiscal year 2017 thanks to investments and partnership deals. Commercial cloud gross margins would improve over time, Hood said. At the same time, as Microsoft's cloud continued to build momentum, she said she expected the company's tax rate to increase.

On competition with AWS — the public cloud leader — Hood had this comment for investors, "I think I have a strong line of sight to AWS's margin profile."

Despite the positive comments from the company, some analysts remained cautions.

"We expect these results will help investors feel better about top-line trends at Microsoft," Citi analyst Walter Pritchard said in a note to investors. "However, an uncharacteristic increase in expenses points to better revenue having to come at a trade-off of lower profitability."

Microsoft Chief Executive Officer Satya Nadella
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