By Jeremy C. Owens
Microsoft Corp. sales topped $50 billion for the first time in the holiday quarter of 2021, and a stock decline in late trading turned around Tuesday after the software giant predicted stronger revenue in the current quarter than analysts expected.
Microsoft (NAS:MSFT) reported fiscal second-quarter earnings of $18.8 billion, or $2.48 a share, up from $2.03 a share a year ago, and revenue jumped to $51.73 billion from $43.08 billion a year ago. Analysts on average expected earnings of $2.32 a share on sales of $50.71 billion, according to FactSet.
Shares fell more than 5% in after-hours trading following the release of the results, but reversed to a gain of 1.2% after Chief Financial Officer Amy Hood shared Microsoft’s forecast in a conference call Tuesday afternoon. Hood said that Microsoft expects fiscal third-quarter revenue of $48.5 billion to $49.3 billion, topping the average analyst expectation of $48.11 billion, according to FactSet, and provided segment guidance that met or beat analysts’ average expectations.
Microsoft’s earnings arrived a little more than a week after the software giant announced plans for the largest tech acquisition of all time, a $69 billion offer for embattled videogame maker Activision Blizzard Inc. (NAS:ATVI) . Activision would add to the company’s More Personal Computing segment, which includes the company’s Xbox division as well as the traditional PC business and established a quarterly record for sales at $17. 47 billion, up from $15.12 billion in the holiday quarter a year ago. Analysts on average expected revenue of $16.62 billion, according to FactSet.
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While Microsoft is largely known to consumers for Windows and Xbox, investors have keyed on the company’s cloud business more in recent years. Microsoft reported record revenue of $18.33 billion in its “Intelligent Cloud” segment, up from $14.6 billion a year ago and topping the average analyst estimate of $18.31 billion, according to FactSet.
Microsoft reported that sales for its core cloud-computing platform, Azure, grew 46%; Microsoft does not report revenue for Azure, even as Amazon.com Inc. (NAS:AMZN) and Alphabet Inc.’s Google (NAS:GOOGL) (NAS:GOOG) regularly reveal revenue totals and operating profits for their rival cloud services. Analysts on average expected Azure growth of 45.3%, according to FactSet.
In a note released in the wake of the report, Wedbush analyst Daniel Ives suggested that Wall Street expected stronger outperformance from Azure.
“The stock is selling off after market as Azure growth came in at 46% and beat the Street at 45% but was lower than some bullish whisper numbers at 48%,” Ives wrote.
Hood may have managed to sate those investors in the conference call, however, by calling for growth to accelerate in the current quarter.
“In Azure, we expect revenue growth to be up sequentially in constant currency driven by our Azure consumption business with strong growth on a significant base,” the Microsoft CFO said while providing her third-quarter forecast, which called for record Intelligent Cloud revenue of $18.75 billion to $19 billion, wholly exceeding analysts’ average estimate.
The Intelligent Cloud segment is expected to receive a boost from another big-money Microsoft acquisition, Nuance Communications Inc. , but that deal did not close before the end of the quarter, as executives had previously said was possible, amid a review by the U.K. Competition and Markets Authority . Hood said in the call that the deal should close this quarter.
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Microsoft’s other revenue segment, “Productivity and Business Solutions,” reported revenue of $15.94 billion, also a quarterly record. The segment that includes cloud-software assets such as Office as well as the LinkedIn professional-networking property grew from $13.53 billion a year ago and beat the average analyst estimate of $15.88 billion.
Microsoft stock closed with a 2.7% decline Tuesday at $288.49 as markets suffered through another volatile trading day. Shares have gained 25.7% in the past year, as the Dow Jones Industrial Average (DOW:DJIA) , which counts Microsoft as a component, added 11%.