Microsoft reported better-than-expected earnings and revenue for the fiscal second quarter. The stock initially fell during a long period of trading, but turned positive after the company released sales forecasts that also exceeded estimates.
Here’s how the company did it:
- Earnings: $2.48 per share, adjusted, versus $2.31 per share as expected by analysts, according to Refinitiv.
- Income: $51.73 billion, versus $50.88 billion as forecast by analysts, according to Refinitiv.
Revenue rose 20% from a year earlier, according to a statement, compared with growth of nearly 22% in the previous quarter. Microsoft’s net profit rose 21% to $18.77 billion.
The company had $36.77 billion in unearned revenue at the end of the year, below the StreetAccount consensus of $36.90 billion. Microsoft said it plans to recognize 45% of its remaining $152 billion in performance bonds over the next year, the first time that percentage has fallen below 50% since at least 2017.
Amy Hood, Microsoft’s chief financial officer, eased investor concerns on the earnings call, saying demand remains strong across much of the business.
Hood said the company expects revenue of $48.5 billion to $49.3 billion in the fiscal third quarter, beating the Refinitiv consensus of $48.23 billion. Hood said the company now expects a slight increase in operating margins for the full year.
As of Tuesday’s close, the stock is down 14% since the start of 2022 and is on course for its worst month since 2010. The crisis has been accompanied by a broad sell-off in tech stocks as investors are preparing for rising interest rates.
“We would be buyers here,” said Christopher Ouimet, portfolio manager at Logan Capital Management, which owns about $60 million in Microsoft stock. “We think there’s a lot of noise in the market right now. Most of the high-growth stocks are being washed away here.”
Ouimet said the rise in the 10-year Treasury bond yield has little to do with Microsoft’s ability “to sell Azure contracts.”
Microsoft’s Intelligent Cloud segment, which contains the Azure public cloud, GitHub and server products such as Windows Server, generated $18.33 billion in revenue. This equates to growth of 25.5% and is slightly above the consensus of $18.3 billion among analysts polled by StreetAccount.
Revenue from Azure and other cloud services grew 46%, ending a four-quarter streak at or above the 50% mark. The expectation was 46%, according to a CNBC survey of 15 analysts, while analysts polled by StreetAccount were looking for Azure growth of 45.3%.
Microsoft does not disclose Azure revenue in dollars. Hood said there will be a sequential acceleration in constant currency growth in the current quarter for Azure.
Revenue from the More Personal Computing segment, which includes Windows, advertising, devices and games, totaled $17.47 billion. That’s up 15.5% and above the StreetAccount consensus of $16.56 billion.
Microsoft said Windows license sales rose 25% in the fourth quarter of 2021. Technology industry research firm Gartner estimated that PC shipments fell 5%.
Xbox hardware revenue grew 4% as Microsoft passed the first anniversary of the launch of the Xbox Series X and Series S consoles. In the prior quarter, Xbox hardware revenue jumped 166%.
Microsoft’s games component, which now accounts for nearly 11% of total revenue, became more relevant to investors this month when the company announced its intention to acquire Activision Blizzard, the publisher of Call of Duty, for $68.7 billion, Microsoft’s biggest deal. 46 years of history.
The Productivity and Business Processes segment, which includes Office, Dynamics and LinkedIn, reported revenue of $15.94 billion, a growth of 19%. Analysts polled by StreetAccount expected $15.86 billion. The Teams communications app that comes with Office productivity software subscriptions now has more than 270 million monthly active users, said Microsoft CEO Satya Nadella.
Nadella said the company generated $15 billion in security revenue in 2021, up nearly 45% from the previous year. In 2020, security revenues increased by more than 40%.
During the quarter, Microsoft launched Windows 11 as the successor to Windows 10 and introduced the $249 Surface Laptop SE for school use that runs a special version of Windows 11.
“There are now over 1.4 billion monthly active devices running Windows 10 or Windows 11,” Nadella said. This compares to more than 1.3 billion active Windows 10 devices in April 2021.
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