NEW YORK (BLOOMBERG) - Microsoft reported quarterly sales and profit that topped analysts' estimates for a ninth straight quarter, lifted by booming cloud-computing demand. This time, investors weren't satisfied.
Sales in the period ended March 31 rose to US$41.7 billion (S$55.3 billion), the software maker said on Tuesday (April 27). That compared with the US$41.1 billion average estimate of analysts polled by Bloomberg. Still, projections ranged as high as US$41.9 billion, with some analysts and investors saying recent gains in the stock had swollen expectations beyond the consensus numbers.
The software giant's market capitalisation flirted with US$2 trillion the past few days as shares soared, buoyed by enthusiasm for the company's growing cloud-services business and the strongest quarter for personal-computer shipments in more than two decades. That meant even though sales climbed a robust 19 per cent and Azure cloud revenue rose at the same clip as last quarter, some Microsoft investors were looking for a bigger blockbuster.
"Expectation creep has set in," wrote Piper Sandler analyst Brent Bracelin in a note to clients ahead of the results. "Investor sentiment remains universally bullish."
Microsoft shares dropped about 2.5 per cent in extended trading on Tuesday following the report. The stock has increased more than 50 per cent in the past year as investors maintain their enthusiasm about chief executive officer Satya Nadella's reinvention of the software maker, centered on growth in cloud-based software and services.
Microsoft's Azure, which sells internet-based computing services to corporations, saw sales increase by 50 per cent, matching the gain posted in the previous quarter. While Azure has been growing steadily, it faces steep competition for big deals from Amazon.com Inc., the dominant cloud service, and Google. A global semiconductor shortage has also constrained sales of Xbox consoles following the release of a new machine late last year.
"Microsoft stock has made a big run and is trading at elevated multiples based on all key valuation metrics," said Daniel Morgan, senior portfolio manager at Synovus Trust.
Net income in the recent period was US$15.5 billion, or US$2.03 a share, Microsoft said. Analysts had predicted US$1.78. The results included a tax benefit related to a decision by the Supreme Court in India. The revenue gain marked the 15th straight quarter of double-digit growth, and the company has exceeded analysts' projections for revenue and earnings in each period since the third quarter of fiscal 2019, according to Bloomberg data.
Commercial cloud sales in the fiscal third quarter rose 33 per cent to US$17.7 billion, Microsoft said. Gross margin in that segment widened 3 percentage points to 70 per cent, mostly due to an accounting change, the company said in a slide posted on its website. Microsoft said revenue in the Intelligent Cloud unit rose to US$15.1 billion.
The pandemic caused some companies to speed up moves to the cloud and accelerated upgrades to internet-based collaboration software, like Microsoft's Office suite and Teams. Sales in the Productivity and Business Processes division were US$13.6 billion, a jump of 15 per cent.
Microsoft saw increased customer allegiance to its cloud services with longer and more extensive Azure deployments and Office cloud customers adding seat licenses for more users, chief financial officer Amy Hood said in an interview.
"We're adding seats, we're selling additional products and you're seeing more workloads be committed to Azure over time," she said. "It's a good sign of commitment to the overall platform of the Microsoft cloud."
Revenue in the More Personal Computing unit rose 19 per cent to US$13 billion. PC sales, once a drag on Microsoft's results, have picked up as buyers upgrade gear for school and work, especially in comparison to the year-earlier period, when the pandemic hurt production and purchasing. Overall PC shipments rose 32 per cent in the quarter, according to Gartner Inc.
Still, a worldwide chip shortage is causing constraints of PC availability, Ms Hood said, and is limiting Microsoft's ability to build enough of the new Xbox console models introduced in November. While Xbox hardware sales grew 232 per cent in the recent period, inventory of those machines remains tight, and that will continue into the June quarter, Ms Hood said.
The company reported US$6 billion in capital expenditures, largely to expand cloud data centers. It will lay out an even larger sum in the quarter ending June 30, Hood forecast. Intelligent Cloud sales will be as high as US$16.45 billion in that quarter, she told analysts, while productivity software revenue will come in between US$13.8 billion and US$14.05 billion. More Personal Computing sales will be as high as US$14 billion, but gaming content and services revenue will decline compared to the year-ago quarter, when pandemic lockdowns juiced video-game demand.
