By Sayanti Chakraborty and Stephen Nellis
(Reuters) - Microsoft Corp beat Wall Street estimates for quarterly profit and revenue on Wednesday, powered by a surprise boost in Windows revenue and as growth in its cloud business stayed on track.
Shares rose 3.2% after the bell, pushing the Redmond, Washington-based company's market capitalization to nearly $1 trillion. The rally added to the stock's roughly 23% gain so far this year, after it hit a record high of $125.85 during regular trading hours.
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Under Chief Executive Satya Nadella, the company has spent the past five years shifting from reliance on its once-dominant Windows operating system to selling cloud-based services.
Azure, Microsoft's flagship cloud product, competes with market leader Amazon.com's Amazon Web Services (AWS) to provide computing power to businesses.
Growth in that unit slowed to 73% from 76% in the fiscal second quarter. Mike Spencer, Microsoft's head of investor relations, said the decline was roughly in line with the company's estimate.
Christopher Eberle, a senior equity analyst with Nomura, said that with Azure, "one should assume a slower rate of growth as we move forward, simply due to the law of large numbers." Still, Azure will bring in $13.5 billion in sales in fiscal 2019 with an overall growth rate of 75%, he estimated. "I can't name another company of that scale growing at these rates."
Microsoft's earnings per share of $1.14 beat expectations of $1 according to IBES data from Refinitiv.
Windows licensing revenue from computer makers grew 9% year over year, beating expectations after a 5% decline in the previous quarter. Spencer said a shortage of Intel Corp processor chips for PCs that many analysts expected to last into this summer had been resolved earlier than expected, allowing PC makers to ship more machines.
Microsoft's "commercial cloud" revenue - which includes business use Azure, Office 365 and LinkedIn - was $9.6 billion this quarter, up 41% from the previous year but down slightly from the 48% growth rate the previous quarter.
Microsoft's so-called "intelligent cloud" unit, which contains its Azure services, posted revenue of $9.65 billion, above Wall Street estimates of $9.28 billion, according to IBES data from Refinitiv. The "productivity and business process" unit that includes both Office as well as social network LinkedIn had $10.2 billion revenue versus expectations of $10.05 billion.
Microsoft's results on Thursday contained two weak spots.
Its gaming revenue was up only 5% versus 8% the quarter before, which Spencer attributed to less revenue from third-party game developers and the fact that many gamers are delaying purchases of Microsoft's Xbox console because a new model is expected soon.
Sales of the company's Surface hardware also grew only 21% versus 39% the quarter before, again driven by customers holding out for updated hardware they expect will be released soon.
Total revenue rose 14% to $30.57 billion in the third quarter ended March 31, beating analysts' average estimate of $29.84 billion, according to IBES data from Refinitiv.
Net income rose to $8.81 billion, or $1.15 per share, from $7.42 billion, or 96 cents per share, a year earlier.
(Reporting by Sayanti Chakraborty in Bengaluru and Stephen nellis in San Francisco; Editing by Sriraj Kalluvila and Richard Chang)