Dreamstime
shares slipped in early morning trading on Wednesday despite better-than-expected financial results from the software giant in the latest quarter.
For its fiscal third quarter ended March 31,
(ticker: MSFT) posted revenue of $41.7 billion, up 19% from a year ago, and ahead of the Wall Street consensus of $41 billion. Adjusted, non-GAAP, profits were $1.95 a share, topping Wall Street’s estimate of $1.78 a share. On a GAAP basis, the company earned $2.03 a share, reflecting a $600 million one-time tax benefit.
Microsoft exceeded the midpoint of its own guidance ranges on all three of its business segments. But after bidding up shares 11% in the last month, investors might have been looking for an even larger beat.
“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning,” Microsoft CEO
Satya Nadella
said in a statement. “We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform.”
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Microsoft’s “Productivity and Business Processes” segment, which includes Office 365, Teams, and other software, had revenue of $13.55 billion, up 15%, and toward the high end of the guidance range of $13.35 billion and $13.6 billion. “Intelligent Cloud,” which includes Azure, had revenue of $15.12 billion, up 23%, and ahead of the guidance range of $14.7 billion to $14.95 billion. “More Personal Computing,” a segment that includes Windows, Surface, Bing, and Xbox, had revenue of $13.01 billion, up 19%, and above the guidance range of $12.3 billion to $12.7 billion.
Azure revenue was up 50%, the company said, while Search advertising revenue was up 17%, excluding traffic acquisition costs. Surface hardware revenue was up 12%. LinkedIn revenue was up 25%. The company noted that commercial cloud revenue was $17.7 billion, up 33%.
Gaming revenue was $3.5 billion, up 50% year over year, driven by 232% growth in Xbox hardware revenue. Xbox content and services revenue was up 34%.
The company repurchased $5.8 billion of stock in the quarter, and returned $10 billion to shareholders overall, including dividends.
On a conference call with investors, Microsoft CFO
Amy Hood
said the company expects June quarter revenues in its Productivity and Business Processes segment to range from $13.8 billion to $14.05 billion. Wall Street has been expecting $13.7 billion.
For Intelligent Cloud, she says, revenue is expected to range from $16.2 billion to $16.45 billion, ahead of the previous Street forecast of $16 billion.
For More Personal Computing, she adds, the company sees revenue of between $13.6 billion and $14 billion, ahead of the Street at $13.2 billion. She said the company sees a mid-teens declined in Surface, due to component-related supply constraints, and she likewise sees Xbox hardware revenue seeing continued supply issues. She says that Search revenue would be in the high 40s on a percentage basis, driven by growth in advertising.
At the top of the range for each segment, revenue for the quarter would be $44.5 billion, well ahead of the Street consensus at $43 billion.
In early morning trading on Wednesday, Microsoft was down 2.8% to $254.75.
Write to Eric J. Savitz at eric.savitz@barrons.com
