Microsoft Earnings Jump as Cloud Services Thrive

The Redmond, Wash., software company said it expected to bring in between $50.15 billion and $51.05 billion in revenue in the current quarter.

The company’s shares, which have climbed more than 45% over the last 12 months, climbed around 1.5% in after-hours trading following the quarterly report.

The lukewarm market reaction to Microsoft’s earnings beat is most likely due to the shares being “priced in prior to the print,” said Brad Reback, an analyst at Stifel Financial Corp.

Microsoft is among tech companies that have benefited most from the sustained shift to working-from-home and remote schooling that followed the outbreak of Covid-19.

Companies and consumers embracing digital services that run on the cloud have been at the center of its growth. Demand for personal computers, many using the company’s Windows software, has surged over the last 18 months as has demand for Microsoft’s latest videogame Xbox consoles.

The cloud business is one of the fastest-growing in tech, expected to expand from $706.6 billion in 2021 to $1.3 trillion by 2025, according to research firm International Data Corp. Microsoft is the second-largest player in the industry with nearly a 20% share of the world-wide cloud computing market after

Amazon,

which dominates with more than a 40% share, according to

Gartner Inc.

Microsoft said Tuesday that Azure and other cloud-computing services grew 50% in what was its fiscal first quarter. The company’s Microsoft Cloud business, a broader representation of its cloud offerings, generated $20.7 billion in sales. That was up 36% from the previous year, breaching the $20 billion quarterly sales mark for the first time.

“We are building Azure as the world’s computer with more data center regions than any other provider, delivering fast access to cloud services while addressing critical data residency requirements,” Microsoft Chief Executive Satya Nadella said on a conference call with analysts.

The company’s gaming business has experienced some slowness as the opening up of the economy meant people were spending less time locked at home playing games. Sales from the Xbox content and service business expanded only 2%, compared with an increase of 30% a year earlier. The modest growth reflects the strong prior-year performance, said Kendra Goodenough, director of investor relations at Microsoft.

The company’s overall gaming business grew 16%, driven by high demand for its latest consoles which came out late last year. Console sales jumped 166% from the year-earlier quarter. Console sales will continue to face supply chain uncertainty in the current quarter, said Microsoft Chief Financial Officer

Amy Hood

on the earnings call.

The global supply chain issues have been leading to delivery delays and production short falls in many industries, crimping supply and increasing costs. The bottlenecks are forecast to put a damper on manufacturing output well into next year.

Microsoft’s Windows licensing to computer manufactures grew 10%, while its Surface hardware sales slipped 17% after unusually strong demand driven by Covid-19 a year ago, said Ms. Goodenough.

Another growing business for Microsoft has been its social network LinkedIn, which saw its sales expand 42% in the quarter. In the period ended June, Microsoft said LinkedIn had reached more than $10 billion in annual revenue for the first time.

“We saw record engagement as [people] increasingly turn to LinkedIn to connect, learn, grow and get hired,” Mr. Nadella said on Tuesday’s conference call, noting that LinkedIn now has nearly 800 million members world-wide.

LinkedIn hit a speed bump this month when it announced it would be scaling back plans in China in response to escalating compliance requirements from the Chinese government. China was LinkedIn’s third-largest country by user count and the retreat could detract from the success the unit has had recently, analysts said.

Write to Aaron Tilley at aaron.tilley@wsj.com