Microsoft earnings beat across the board

Microsoft shares fell 1% in extended trading on Tuesday even though the software maker issued fiscal third-quarter earnings that exceeded analysts’ expectations.

Microsoft beat expectations on the top and bottom lines. The company announced plans in the quarter to buy Activision Blizzard for almost $69 billion. Microsoft also beat EPS and revenue expectations, $49.36B versus. $49.05B estimated.

Revenues: $49.36 billion, vs. $49.05 billion as expected by analysts, according to Refinitiv.
Earnings: $2.22 per share, adjusted, vs. $2.19 as expected by analysts, according to Refinitiv.

Microsoft’s revenue increased by 18% year over year in the quarter, which ended on March 31, compared with 20% in the previous quarter, according to a statement. Microsoft turned in the smallest revenue beat since 2018, exceeding consensus by less than 1%. Sales and marketing expenditures totaled $5.6 billion, 10% higher than the year-ago quarter and the fastest growth in more than three years.

The company’s Intelligent Cloud segment, which contains Microsoft’s Azure public cloud for application hosting, along with SQL Server, Windows Server and enterprise services, generated $19.05 billion in revenue. That’s up 26% and above the $18.90 billion consensus among analysts polled by StreetAccount.

Revenue from Azure and other cloud services jumped 46% in the quarter, compared with 46% growth in the prior quarter. The expectation was 45.3%, according to a CNBC survey of 13 analysts, while analysts polled by StreetAccount had been looking for 43.6% growth.

Microsoft’s Productivity and Business Processes segment, containing Office productivity software, LinkedIn and Dynamics, posted $15.79 billion in revenue in the quarter, up about 17% and slightly more than the StreetAccount consensus estimate of $15.75 billion. Microsoft raised the prices of certain Office 365 productivity software subscriptions during the quarter.

The More Personal Computing Segment, which includes Windows, Xbox, search advertising and Surface, kicked in $14.52 billion in revenue, up 11% and higher than the $14.27 billion StreetAccount consensus.

Microsoft said revenue from Windows license sales to PC manufacturers increased 11% in the quarter. Microsoft had projected high-single-digit growth in January. Research firm Gartner estimated that PC shipments fell 6.8% in the quarter, marking the sharpest decline since the first quarter of 2020, after a pandemic-fueled market expansion. Excluding PCs running Google’s Chrome OS operating system, which became more popular during Covid, shipments rose by 3.9%.

Revenue from security products and services falls under each of Microsoft’s three segments. In January Microsoft said its security revenue grew nearly 45% in 2021, faster than any other major product category. The company disclosed financial figures from its security business for the first time last year, surprising some observers.

In the quarter Microsoft announced a plan to acquire video-game publisher Activision Blizzard for $68.7 billion, the largest transaction in Microsoft’s 47-year history. Microsoft also closed its Nuance Communications acquisition and laid out a strategy for expanding in health care, an industry Nuance focuses on. Nuance took away a penny from Microsoft’s quarterly earnings but added $111 million in revenue.

Excluding the after-hours move, Microsoft stock has declined 19% since the start of 2022, underperforming the S&P 500 index, which is down about 12% over the same period.