(Bloomberg) – Microsoft Corp. reported sales and profits above analyst estimates for a 10th consecutive quarter, pushing shares higher after some investors were initially scared by signs of slowing growth in the software giant’s Azure cloud business .
Sales for the fourth quarter, which ended June 30, climbed 21% to $ 46.2 billion, the Redmond, Wash., Based company said in a statement on Tuesday. That compares to the average estimate of $ 44.3 billion from analysts polled by Bloomberg. Net income reached $ 16.5 billion, or $ 2.17 per share, while analysts expected $ 1.92.
Microsoft’s market value now exceeds $ 2 trillion, and high-flying stocks have led investors to expect results to far exceed projections. After years of investing in making Azure a solid number 2 in cloud services behind Amazon.com Inc., investors are no longer questioning CEO Satya Nadella’s business transformation, but some are getting nervous about the business. idea that the momentum is running out of steam. Microsoft’s sales and margin forecast on a conference call reassured investors of its outlook, and stocks gained 1.2% in extended trading after initially falling about 2.5% after The report.
“People are not happy if Azure is slowing down – they fear the good days are over,” said Mark Moerdler, analyst at Sanford C. Bernstein. “People seem to be concerned that Azure is never as big as Amazon.” Moerdler previously wrote that he believed the concerns about Azure’s growth and margins were overblown.
Azure’s 51% sales increase over the period disappointed some investors as it was fueled in part by currency fluctuations – the number drops to 45% without the increase, which is a slowdown from the previous period. Azure revenue was up 50% year over year for the previous two quarters, excluding currency fluctuations. At constant exchange rates, Azure saw a 46% sales gain in the March quarter.
During the company’s call with analysts, CFO Amy Hood said Azure’s growth rates, including currency impacts, are expected to “remain relatively stable.” Its first-quarter tax guidance for the company’s two largest units – Intelligent Cloud and Productivity – exceeded estimates by analysts polled by Bloomberg.
Before the results were released, Microsoft shares had fallen to $ 286.54 in regular New York trading on Tuesday. The stock rose 15% in the fiscal fourth quarter, compared to a gain of 8.2% for the S&P 500 index, reflecting investor enthusiasm for the growth prospects of Azure, Office, artificial intelligence and Games. The recent period marked the second quarter in a row where initial analysts’ ratings highlighted Microsoft’s better-than-expected sales and earnings performance, while shareholders were less satisfied with specific details.
Hood praised Azure’s performance as better than expected and said demand remains strong across Microsoft’s cloud businesses, including Azure software services, Office and Dynamics.
“Forty-five percent was both better than we expected and driven by consumer growth, which is very good,” Hood said in an interview. “The demand is healthy. Overall performance was better than expected.
Commercial cloud sales in the fiscal third quarter increased 36% to $ 19.5 billion, Microsoft said. The gross margin, or the percentage of sales remaining after subtracting production costs, at this business widened by 4 percentage points to 70%, the company said in a slide posted to its website. According to Anurag Rana, analyst at Bloomberg Intelligence, the company’s total gross margins have benefited from an accounting change related to current and future server and network equipment, and this could be the last quarter where this leads to an improvement in margin.
“This has been a great year due to the accounting change, but this particular boost hides the fact that gross margin is being affected by the faster growth of the Azure business,” Rana said before earnings.
Hood may have allayed concerns about profitability on the conference call by noting that excluding the impact of the accounting change, margins will be wider in the current year.
In the Productivity unit, mostly comprised of Office software, fourth-quarter revenue was $ 14.7 billion, compared to an average analyst estimate of $ 14 billion. LinkedIn, which Microsoft acquired in 2016, became the third company in three years to exceed $ 10 billion in annual revenue, Hood said, and Teams, Microsoft’s competitor to Slack Technologies Inc., reached 250 million monthly active users, a huge leap forward. of the $ 145 million the company reported in April.
Sales of Intelligent Cloud products, made up of Azure and server software, reached $ 17.4 billion, above analysts’ expectations for revenue of $ 16.4 billion.
In the More Personal Computing unit, which includes products such as Windows, Surface, and Xbox, sales were $ 14.1 billion. Analysts had expected $ 13.9 billion. Sales of Windows software sold to PC makers fell 3%, a drop that reflects the sharp increase in laptop purchases in the same quarter a year earlier, when Covid-19 lockdowns forced many workers to do so. their remote work.
Overall gaming revenue has jumped 11% in the recent past, Microsoft said, with Xbox hardware sales more than doubling. A global semiconductor shortage has limited sales of Xbox consoles following the release of a new machine late last year, and growth in video game and game services fell 4% during the quarter compared to the period of the previous year.
Component shortages are also hurting the availability of PCs and Surfaces, Hood said. Surface sales fell 20% in the quarter. Hood expects the impact of chip and coin shortages to persist in the new fiscal year, which began July 1.
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