Microsoft shares slipped in late trading Tuesday, despite better-than-expected financial results from the software giant in the latest quarter.
For its fiscal third quarter ended March 31, Microsoft (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.”
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 late trading, Microsoft was down 3.3%, to $253.28.
Write to Eric J. Savitz at eric.savitz@barrons.com
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