Microsoft Generates $51.7 Billion in Quarterly Revenue as Cloud, Gaming and PC Sales Rise

Microsoft Corp. recovered from an early drop and grew almost 3% after hours following exercise second quarter report which has seen the company exceed profit and revenue expectations.

The company reported net income for the quarter of $18.8 billion, up 21% from a year ago to $2.48 per share. Total revenue increased 20% to $51.7 billion from a year ago. This was a strong performance, as Wall Street predicted that Microsoft would report earnings of just $2.31 per share on revenue of $50.9 billion.

Microsoft President and CEO Satya Nadella (pictured) said the company is benefiting as technology as a percentage of global gross domestic product continues to rise. “We innovate and invest in diverse and growing markets with a common underlying technology stack and an operating model that reinforces a common strategy, culture and sense of purpose,” he said.

Microsoft shares initially fell within minutes of its report release, with investors perhaps a little upset that the company’s cloud business didn’t do better. The company said its Intelligent Cloud segment, which includes Azure public cloud, GitHub and products such as Windows Server, generated $18.33 billion in revenue. That was just above the Wall Street consensus of $18.3 billion, representing growth of 25.5%.

Microsoft, however, said its revenue from “Azure and other cloud services” increased by 46%. That’s better than the segment as a whole, but it was worse than the previous four quarters, when growth was over 50%.

Microsoft’s streak of cloud success has cooled somewhat and investors will take notice, Forrester analyst Lee Sustar told SiliconANGLE. He speculated that the slowdown could be the result of businesses moderating on spending on cloud services following the pandemic-driven recovery, or that some companies might simply be hedging their bets with other cloud providers. , adopting a true multicloud strategy.

“Yet a growth rate of 46% indicates that heavy consumers of IT infrastructure – both in the public and private sector – are taking a cloud-first approach to IT spending,” Sustar said. “This will continue to benefit Microsoft.”

Elsewhere, Microsoft has seen steady growth in its More Personal Computing segment. The business, which includes Windows revenue, device sales, advertising and games, posted sales of $17.47 billion, up 15.5% and above estimate consensus of $16.56 billion.

Microsoft said Windows license sales rose 25% in the fourth quarter, a seemingly decent performance at a time when Gartner Inc. reported personal computer shipments were down 5%.

Microsoft’s Xbox hardware revenue grew 4%. Its games business now accounts for more than 11% of the company’s total revenue, which may explain why Microsoft was so eager to spend $68.7 billion to acquire games maker Activision Blizzard Inc. during the quarter – his biggest contract ever.

On a call with analysts, Nadella said buying Activision would help consumers play games where and how they want. The deal will effectively “shape the future of the game,” Nadella said, without giving further details.

Holger Mueller of Constellation Research Inc. said the Activision acquisition suggests Microsoft has a strategy for its next level of growth in the works. “The company is in good shape with all key performance indicators up more than 20%,” he said. “It’s not something investors of a few years ago would have expected to see from Microsoft in the 2020s.”

Microsoft’s other key segment is its Productivity and Business Processes unit, which includes Office, Dynamics and LinkedIn. Segment revenue rose 19% from a year ago to $15.94 billion, just ahead of analysts’ forecasts.

Pund-IT Inc. analyst Charles King said the swing in Microsoft shares was likely the result of a much broader slump in U.S. and global financial markets amid inflationary trends and lingering economic concerns. the supply chain.

“Under other circumstances, Microsoft’s quarter-over-quarter revenue decline and Azure cloud services growth might have been overlooked,” King said. “Despite these issues and challenges, Microsoft’s leadership in many commercial and consumer markets and its overall financial strength provide a much stronger foundation than many of its peers. This should help Microsoft maintain its position until the markets are balanced again.

Microsoft had a busy quarter. Besides buying Activision, he also found time to launch Windows 11, the successor to Windows 10, and struck a deal to acquire Xandr Inc., the ad tech business of AT&T Inc.

As a guide, Microsoft said it expects revenue of $48.5 billion at the low end and $49.3 billion at the high end of its estimate for the third trimester. That compares well to Wall Street’s forecast of just $48.23 billion.

Photo: Fortune Brainstorm TECH/Flickr

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Robert P. Miller