Microsoft shares fell 3% in expanded trading on Tuesday after the software maker announced third-quarter earnings and quarterly revenue forecasts that were stronger than analysts expected. The company’s operating margin decreased slightly as the cloud became a larger part of its business.
This is how the company did it:
- Merits: Adjusted for $ 1.95 per share versus $ 1.78 per share as analysts expected, Refinitiv said.
- Revenue: According to Refinitiv, $ 41.71 billion versus $ 41.03 billion as analysts expected.
The software and hardware maker posted annualized sales growth of 19% for the quarter ended March 31, according to a statement. This is the largest quarterly increase the company has seen since 2018, in part due to the surge in PC sales driven by coronavirus-induced bottlenecks last year.
The company announced that Azure public cloud, which rivals market leader Amazon Web Services, has grown 50%, faster than analysts’ expected 46%. This was found in a CNBC review of 14 stock research notes. Azure revenue rose 50% in the previous quarter. Microsoft does not report Azure earnings in US dollars.
In terms of the forecasts, Microsoft expects sales of 43.6 to 44.5 billion US dollars for the fourth quarter, said Amy Hood, Microsoft’s chief financial officer, in a conference call with analysts. In the middle of the range, which would mean 16% growth, more than the consensus estimate of $ 42.98 billion among analysts surveyed by Refinitiv.
Microsoft’s Intelligent Cloud segment generated revenue of $ 15.12 billion in the third quarter of its fiscal year. This was a 23% year-over-year increase and was above the FactSet consensus estimate of $ 14.92 billion. Intelligent Cloud includes Azure, Windows Server, SQL Server, Visual Studio, GitHub and Enterprise Services.
The Productivity and Business Processes segment, which includes Office, Dynamics, and LinkedIn, contributed $ 13.55 billion to revenue, up 15% and more than the FactSet consensus of $ 13.49 billion. The team’s chat and calling app reached 145 million daily active users, up from 115 million in October, Microsoft CEO Satya Nadella said in the call.
The company’s More Personal Computing unit, which includes Windows, games, devices, and search, had sales of $ 13.04 billion. That was up nearly 19% and more than the consensus of $ 12.55 billion. Technology research firm Gartner estimated earlier this month that PC makers shipped nearly 70 million units in the quarter, 32% more than the year-ago quarter. This is the fastest growth since Gartner started tracking the PC market in 2000.
Microsoft benefits from this when selling Windows licenses to PC manufacturers, which increased by 10%. There are now over 1.3 billion monthly active devices running the Windows 10 operating system, Nadella said.
The result was greater than Microsoft itself predicted. In January, Hood demanded that device manufacturers’ Windows license revenue be in the low single digits.
The personal computer market suffered from “significant ongoing restraints in the supply chain,” Hood said on Tuesday.
At the same time, the gross margin for Microsoft’s broad commercial cloud product category – including Azure, commercial subscriptions to the Office 365 productivity package, cloud-based Dynamics 365 enterprise applications, and commercial parts of LinkedIn – decreased from 71% to 70%. The number is important for investors who want to see Microsoft can continue to make Azure more profitable.
The operating margin for the Intelligent Cloud segment, which also includes Azure, also decreased from around 44.5% to 42.5%. Microsoft’s operating margin was 40.9% after 41.6%.
Microsoft announced in the quarter that it had won an order from the US Army worth up to $ 21.9 billion in a decade for augmented reality headsets based on its latest HoloLens device. The company has also released patches to fix vulnerabilities in Exchange Server’s on-premises email and calendar software exploited by Chinese hackers. It also completed the acquisition of video game maker ZeniMax Media, valued at $ 8.1 billion.
Notwithstanding the post-business move, Microsoft shares are up 18% since the start of the year, compared to up roughly 12% for the S&P 500 over the same period.
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