Microsoft Corp. may not be cool, but its sales continue to defy expectations by growing at a much faster clip than those of its business-technology peers.
Microsoft’s revenue rose 11% from a year earlier in the three months ended Sept. 30, excluding Nokia ’s mobile-phone business that Microsoft purchased last spring.
Meanwhile, competitors in corporate technology—such as International Business Machines Corp. , Hewlett-Packard Co. and Oracle Corp. —posted shrinking or slow sales growth.
“Microsoft is bucking the trend,” said Daniel Ives, an analyst with FBR Capital Markets.
Microsoft’s stock rose 3.1% in after-hours trading Thursday following the release of its financial report for the fiscal first quarter. The company’s stock price has reflected strong revenue and profit growth in the past year.
Shares climbed 33% in the past year through Thursday’s market close, far outpacing the S&P 500 stock index over the period.
The company’s market value recently surpassed that of Google Inc. for the first time since June 2013.
The latest quarterly results continue a charmed first year in office for Satya Nadella , who in February was named chief executive, only the third in Microsoft’s history.
Mr. Nadella has focused on many of the same lines of business as his predecessors, and earlier investments in cloud computing and the Xbox videogame console have paid off under his watch.
Mr. Nadella has won over Wall Street with his willingness to cut jobs, favor innovation over existing businesses and de-emphasize products outside Microsoft’s core offerings.
In the most recent quarter, Microsoft’s revenue from software for business customers rose more than 9.5% from a year earlier.
The company had robust growth in both newer offerings such as Microsoft Office 365 (an online version of the popular desk-jockey software suite) and mature products like the version of Windows for computer servers.
Cloud software sold to businesses—primarily Office 365, the Microsoft Dynamics CRM sales tool and the Azure cloud-computing service—more than doubled to $1.18 billion, or roughly 5.1% of total revenue for the quarter.
But Microsoft executives said during a conference call that customers for Azure, which lets corporate IT departments and software developers rent computing horsepower and storage capacity by the hour, also buy the company’s traditional corporate software.
Microsoft’s mobile business remains a trouble spot. Sales of Windows-powered Nokia smartphones rose, but the company continues to lose market share toApple Inc. and manufacturers of phones that run Google’s Android operating software.
Microsoft made less money than it did a year earlier from its mobile-phone operating software business, largely because Android-phone makers such asSamsung Electronics Co. sold more of their inexpensive phones, which generate lower fees for Microsoft. Android phone makers pay Microsoft a royalty for Microsoft patents used in the Google operating system.
Sales of Windows operating software for personal computers also declined, but less than in prior quarters, driven by improving demand for PCs since their 2013 swoon.
Microsoft’s latest quarterly results continue a charmed first year in office for CEO Satya Nadella. Agence France-Presse/Getty Images
The company made more headway with its other consumer hardware products.
Revenue more than doubled for the Surface tablet computer, which sold poorly when it launched two years ago. The Surface Pro 3, released in June, received a more positive reception, the company said. The newer device is positioned more as a laptop replacement than a tablet computer.
Microsoft also sold twice as many Xboxes as a year ago, it said, helped by a $100 price cut for the latest model.
Despite Microsoft’s recent successes, Google tends to get the buzz once reserved for the Redmond, Wash., company.
In an interview, Microsoft Chief Financial Officer Amy Hood was unfazed. “I wasn’t that cool in high school, either,” she said.
Overall in the quarter, Microsoft revenue was $23.2 billion, including the Nokia business, compared with $18.5 billion a year ago. Net income fell to $4.5 billion, or 54 cents a share, from $5.2 billion, or 62 cents, in the same quarter last year.
Microsoft’s profit was weighed down by about $1.1 billion, or 11 cents a share, in costs related to a massive round of job cuts Mr. Nadella pushed through this summer and costs to integrate Nokia’s business into the rest of Microsoft.
Corrections & Amplifications
An earlier version of this story incorrectly said Microsoft’s decline in mobile-software revenue was due to a shift toward lower-cost Windows smartphones.
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The International Council of Shopping Centers projected that U.S. sales during the holiday shopping season will increase 4%, which would mark the strongest growth in three years for the crucial retail selling period.
ICSC expects total holiday sales at shopping centers to reach $488.6 billion in the period, which typically begins on Black Friday, the day after Thanksgiving. However, retailers have been opening their doors earlier to provide more flexibility for holiday shoppers. Some industry consultants have said Thanksgiving could turn into a full shopping day this year as retailers debate moving up their openings and door-buster events.
ICSC said signs of an improving jobs market and growth in personal income bodes well for consumers and that despite a setback in September, that consumer confidence remains higher than a year earlier.
Holiday hiring, another strong indicator of holiday sales, is also expected to increase this year, with seasonal employment at shopping centers expected to rise by 7.3% to 794,258 jobs, ICSC stated.
So far, seasonal hiring targets by retailers announcing their plans for this year have been uneven. Retailers typically hire temporary, part-time staff to help handle the higher traffic that occurs during the holidays.
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Samsung Electronics Co. ( 005930.SE +0.96% ) estimated its third-quarter operating profit more than halved from a year earlier, hit by weak smartphone sales, forcing the company to rely more on its chip business to drive future earnings growth.
As stiff competition from Chinese vendors continues to pressure its mobile division profit—it derives more than 60% of its profit from the sale of mobile phones—investors have sold off Samsung shares on concerns about its outlook. Its stock is down about 15% so far this year.
The world’s largest smartphone maker by shipments said Tuesday its third-quarter operating profit likely fell 57.8% to 61.8% from a year earlier to between 3.9 trillion won ($3.6 billion) and 4.3 trillion won ($4.0 billion). Last year, Samsung reported an operating profit of 10.2 trillion won. A poll of seven analysts expected Samsung’s operating profit to come in at 4.3 trillion won.
Expectations for the quarter have already been low as sales of Samsung’s flagship device, Galaxy S5 have been weaker than expected and the company only began to sell its new smartphone-tablet hybrid the Galaxy Note 4 last month.
Samsung said in a statement that while smartphone shipments increased in the quarter, its operating margin was weighed down by hefty marketing costs and falling average selling prices. It didn’t provide specific figures.
It also sounded a cautious note for the fourth quarter noting the outlook remains uncertain.
The weak earnings guidance comes as Samsung struggles to figure out its broader growth strategy and amid expectations of a major restructuring later this year, according to people familiar with the situation.
Chairman Lee Kun-hee remains ill following a heart attack in May. While Samsung said Mr. Lee ’s health is improving, critics said the company lacks a visionary to steer the company into new growth areas especially at a challenging time.
Meanwhile, Samsung affiliates have been carrying out a series of financial transactions that will help heir-apparent and Mr. Lee’s only son, Jay Y. Lee, inherit the company from his father. The younger Mr. Lee, a vice chairman of Samsung Electronics, remains the biggest shareholder of a de facto holding company of the Samsung Group, South Korea’s biggest conglomerate.
Fortunately for Samsung, its lead in memory chips and tight supply is expected to cushion the blow from weak mobile phones sales this year. Analysts say chip profits could exceed those from mobile phones later this year.
The last time Samsung’s chip profits exceeded mobile profits was in the second quarter of 2011.
To continue to stay on top, Samsung on Monday announced plans to build a $14.7 billion plant over the next three years, to address future chip demand for various electronic devices ranging from smartphones, to tablet computers and robots.
“Samsung does make good memory chips,” said Doh Hyun-woo, an analyst with Mirae Asset Securities in Seoul, noting that the company will have to shift its gear to rely less on mobile phones and more on chips for profit growth.
He expects Samsung’s annual chip profits to rise 34% to 11.5 trillion won next year, from an estimated 8.6 trillion won this year. He forecasts that mobile operating profit will fall to 9.7 trillion won in 2015 from an estimated 14.8 trillion won this year.
Samsung didn’t provide a breakdown of profit estimates by businesses.
It will release final earnings figures later this month.
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Amazon.com Inc. AMZN +0.90% is gearing up to more directly challenge Google Inc. GOOGL +0.29% 's dominance of the online advertising market, developing its own software for placing ads online that could leverage its knowledge of millions of Web shoppers. Initially, Amazon plans to replace those ads on its pages that Google chiefly supplies with a new in-house ad placement platform, said people familiar with the matter. In the future, that system could challenge Google's $50 billion-a-year advertising business and Microsoft Corp.'s MSFT +0.18% , they added.
The Seattle-based retailer already has a limited business placing ads on other sites. In a sign that it has larger goals, Amazon is testing ways to expand that program with new types of ads.
"Amazon could use the data it has about buying behavior to help make these ads much more effective," said Karsten Weide, an analyst at researcher IDC. "Marketers would love to have another viable option beyond Google and Facebook FB 0.00% for their advertising."
Amazon has told potential ad partners that it may begin testing the new placement platform, dubbed Amazon Sponsored Links, later this year. The plan, these people said, is to make it easier for marketers to reach its nearly 250 million active users.
The two companies have increasingly been treading on the other's turf as they battle to be the first place that Internet shoppers go to hunt for products and services. Google, for instance, has been invading Amazon's e-commerce business with its product-listing ads and Google Shopping Express for delivery. Amazon has launched its own smartphone and also competes with Google in online storage services.
Amazon and Google declined to comment.
"Amazon knows a lot about how people are searching on the site and consumer preferences and histories. It can use that to tailor advertising in ways that probably nobody else can," said Reid Spice, vice president of media at digital agency iCrossing.
The people familiar with the matter said Amazon's offering would resemble Google's AdWords, the engine that Google uses to place keyword-targeted ads alongside Google search results and on more than two million other websites. AdWords is the foundation of Google's roughly $50 billion-a-year advertising business, and Google counts Amazon as one of its biggest buyers of text link ads.
"Keyword" programs match a search phrase such as "running shoes" and show ads for a shoe retailer on the Web pages that the search delivers.
Amazon now displays several types of ads on its pages, including text-based keyword ads placed by Google and other third parties, as well as product ads that Amazon places itself. EMarketer estimates that Amazon will sell nearly $1 billion in advertising revenue this year, up from more than $700 million last year.
To displace the Google ads on its site, Amazon is building a tool to help advertising agencies buy in bulk for potentially thousands of advertisers, the people familiar with the matter said. Building such a system could enable Amazon to boost its business placing ads on third-party websites. Google offers similar capability for advertisers using AdWords.
Amazon today has an "affiliate" program that offers websites Amazon product ads and pays small commissions when those website users click through and buy a product on Amazon. To attract more websites, and help their owners earn more, Amazon also is testing a way for them to get paid any time a user sees an ad; that initiative was earlier reported by the technology blog Zatznotfunny.com.
Amazon would face big hurdles trying to compete with Google to place its ads on other sites. AdWords launched in 2000, and with more than one million advertisers vying for ad space on the platform, prices get pushed higher—a big attraction for other publishers to use the system. Google says it paid more than $9 billion to outside websites in 2013.
For Amazon, more advertising offers the prospect of more revenue and potentially higher profit margins. Amazon remains primarily a retailer, buying goods from suppliers and selling them to customers with small markups. The company operates on notoriously thin profit margins, and frequently posts losses, as it invests for expansion.
Google's ad-supported business is highly profitable. It generated more operating profit in the first six months of this year than Amazon has since it was founded 20 years ago, according to researcher S&P Capital IQ.
Amazon has other reasons to want Google's keyword ads off its site. It doesn't control the pricing of such ads, Google does. Nor does Amazon want Google to capture data about its customers, based on their searches and which ads they click on.
As Amazon seeks to mimic Google's cash-cow business, Google itself has remade product ads on its site to look more like Amazon's, with images, prices and customer ratings.
Amazon is a big buyer of traditional text ads on Google, but doesn't buy the enhanced product ads. Industry analysts say Amazon doesn't want to share with a top rival details about products and inventory that are a requirement for running those ads.
—Jack Marshall contributed to this article.
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During Facebook Inc.'s earnings call last month the social-networking company revealed the average per ad price increased 123% in the most recent quarter compared with a year ago. Ad impressions—the number of ads it displayed—declined 25%, while ad revenue rose 67% to $2.68 billion, the company said.
Facebook says it is providing better outcomes for its advertisers. "The price of ads correlates to the value that they create," Dave Wehner, Facebook's chief financial officer, said on the call. "We continue to focus on making those ad units better and better, more relevant and targeted for the people who use Facebook, as well as for marketers."
But some small-business owners don't necessarily see it that way. The price increase is "great news for Facebook's top line, but it buries the small-business owner who has a limited ad budget," says Nathan Latka, chief executive of Heyo.com, a Blacksburg, Va., firm that makes applications for creating marketing contests on Facebook.
While the value of Facebook ads may be improving for some, many small businesses are disadvantaged, he adds, because they don't have the financial or human resources to manage the work behind a successful social-media ad campaign, including designing ads, measuring their reach and making changes to improve their effectiveness.
In 2010, small businessman Tom Buroojy began buying ads that appear on the right side of Facebook users' news feeds for his Newtown, Pa., firm, iHeadBones Inc., a maker of earphones. Two years later, he was spending about $50 monthly on the ads. After trying various ad messages, he settled on "Hate Your Earbuds?" which delivered vastly more clicks than "Listen to Your Music Safely."
Small-business owner and onetime Facebook advertiser Tom Buroojy, demonstrates his iHeadBones headphones. Jeff Lautenberger for The Wall Street Journal
He targeted the ads toward users whose profiles indicated that they like running and hiking—an audience that's likely to be increasingly sought after by big sports brands as well makers of new wearable-tech devices. But by 2013, the "cost per click" on his ads more than quadrupled to about $2, according to his Facebook statements. The volume of ad impressions, clicks and sales from Facebook users had plummeted by 60%, 50% and 75%, respectively, he said.
Mr. Buroojy put a halt to his Facebook ads in September, but he says he's continuing to advertise on Google Inc., GOOGL +1.54% Google Inc. Cl A U.S.: Nasdaq $592.70 +8.99 +1.54% Aug. 18, 2014 4:00 pm Volume (Delayed 15m) : 1.47M AFTER HOURS $593.70 +1.00 +0.17% Aug. 18, 2014 7:41 pm Volume (Delayed 15m) : 3,580 P/E Ratio 30.11 Market Cap $397.33 Billion Dividend Yield Rev. per Employee $1,321,030 08/18/14 Getting More Than Just Words i... 08/18/14 As Google Builds Out Own Conte... 08/18/14 Google Is Planning to Offer Ac... More quote details and news » GOOGL Your Value Your Change Short position spending about $325 a month. "We are seeing way more sales from people who came from Google," Mr. Buroojy says.
One reason some businesses' Facebook ads are reaching fewer users and costing more is that competition for ad space has intensified. Roughly 1.5 million firms of all sizes pay to advertise on Facebook today, up from around one million a year ago. Also, there's less space available. Ads in Facebook's right-hand column recently took on a new, larger design, allowing room for fewer per page.
When it announced the change in April, Facebook said overall "people will see fewer ads on Facebook" and that "some advertisers may see increased prices at auction."
The Facebook spokeswoman said the new format, plus a growing array of free targeting and measurement tools, are designed to improve ad effectiveness and value.
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"Small businesses that effectively use the many targeting and measurement options we offer are seeing healthy returns on Facebook ads," she said.
Lauren Pohl, founder of KidzCentralStation.com, began paying Facebook 11 months ago to advertise her online platform for parents to find and book children's classes, initially setting a $10 daily limit.
She says she has worked hard to make her ads more compelling by first testing them free of charge in her New York company's news feed. For example, she has run ads with slightly different images (a drawing of three kids, versus a photo of just one) and marketing language ("NYC top class providers" versus "classes for kids in NYC").
After seeing which generated the most "likes"—such as the photo of the one child with the words, "NYC top class providers"—she would pay for just the better-performing ad to appear inside and to the right of users' news feeds.
The most useful Facebook tool for her so far has been the built-in menu options for targeting users based on their age and location, gender, if they have children, and the ages of their children. She gets better results focusing on parents of children ages 12 and under in two New York City boroughs, instead of moms throughout New York City with children any age.
Ms. Pohl says her ads' impressions and clicks have since declined 55% and 73%, respectively, though her sales have risen 129%.
Her hunch is that the ads gave KidzCentralStation.com greater exposure because "even if someone doesn't click on an ad they may see it and that helps build brand awareness," she says.
She also advertises through Google and email marketing campaigns. Facebook currently accounts for just half of her total ad budget—though in the fall, she plans to increase her daily spend on Facebook to $50.
In an April survey of 728 small-business owners, 83% said they expect to spend nothing this year on Facebook ads. But 14% said they expect to spend between $1 and $4,999 this year and 1.3% said between $5,000 and $9,999.
Of those who previously paid for Facebook ads, just 19% said they've seen a quantifiable increase in sales, revenue or brand awareness, according to the survey, by The Wall Street Journal and Vistage International. Fifty-five percent didn't, and 26% were unsure.
Facebook sells ads on an auction basis, whereby advertisers bid against one another to have their ads displayed to users. The price of ads varies based on a range of factors, including advertiser demand, ad-targeting parameters, and how well Facebook's technology figures specific ad content will resonate with its users.
Don DiCostanzo, co-owner of electric-bicycle manufacturer Pedego Inc., began advertising on Facebook in 2012. But then a three-and-a-half day campaign in May failed to generate even one sale.
He spent about $3,400 on two right-hand column ads over the Memorial Day weekend. One targeted men, the other women, ages 40 and older in Southern California, where Pedego's bikes are sold through 12 dealerships for between $2,095 and $3,695 apiece. The ads offered paying customers $200 worth of free accessories such as baskets, lights, fenders and saddlebags.
Mr. DiCostanzo says they generated 354,000 impressions and 7,831 clicks and that the clicks cost him 40 cents apiece, up from 24 cents when he ran a similar campaign in December.
Unlike with the winter campaign, this time he asked his dealers to find out what led customers to buy from them, and "not one person told the dealers that he or she came in as a result of the Facebook ad," he says.
With help from some of his 17 employees, he's still posting about three updates daily, some with video and photos, to his Irvine, Calif., company's Facebook page. He's using it to engage with users in hopes of boosting sales for free.
"The value of using Facebook as a marketing tool has dramatically diminished as its popularity has grown," he says.
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