Microsoft sales, profit profit; Stocks fall on Azure Concern

(Bloomberg) — Microsoft Corp. reported revenue and earnings that beat analysts’ estimates for the 10th straight quarter, although investor optimism was dampened by concerns about slowing growth in the software giant’s Azure cloud computing business. Shares fell in late trading.

Fourth quarter revenue, which ended June 30, rose 21% to $46.2 billion, the Redmond, Washington-based company said in a statement Tuesday. That compares to the $44.3 billion average analyst estimate polled by Bloomberg. Net income rose to $16.5 billion, or $2.17 per share, while analysts had forecast $1.92.

Microsoft’s market value is now over $2 trillion, and its soaring stocks have led investors to expect results to far exceed projections. Azure’s 51% sales increase over the period disappointed some investors as it was fueled in part by currency movements – the number drops to 45% without that boost, marking a slowdown from the prior period. As Azure grows steadily, the company faces stiff competition for major business deals from Amazon.com Inc., the dominant cloud service, and Google, which ranks third in the market but is putting resources into the company to catch up. to fetch.

“People aren’t happy when Azure slows down — they’re afraid the good days are over,” said Mark Moerdler, an analyst at Sanford C. Bernstein. “People seem to be concerned that Azure will never be as big as Amazon.”

Azure revenue was up 50% year-over-year in the two previous quarters, excluding currency movements. In constant currency, Azure posted a 46% sales gain in the March quarter.

Microsoft shares fell about 2.6% in expanded trading after the report, after falling to $286.54 in New York. The stock rose 15% in the fiscal fourth quarter, compared to 8.2% for the S&P 500 index, reflecting investor exuberance about growth prospects for Azure, Office, artificial intelligence and gaming. The recent period marked the second quarter in a row in which initial analyst notes highlighted Microsoft’s better-than-expected performance in revenue and earnings, while shareholders were less pleased with specific details.

Still, Chief Financial Officer Amy Hood praised Azure performance as better than she predicted and said demand remains strong across Microsoft’s cloud operations, including Azure, Office and Dynamics software services.

“Forty-five percent was both better than we expected and driven by consumption growth, which is very good,” Hood said in an interview. “Demand is healthy, overall execution was better than I expected.”

Sales of commercial cloud services in the fiscal third quarter were up 36% to $19.5 billion, Microsoft said. Gross margin, or the percentage of sales left after production costs, in that company rose 4 percentage points to 70%, the company said in a slide on its website. The company’s overall gross margins have benefited from an accounting change associated with current and future server and network equipment, and this could be the last quarter where that leads to an improved margin, according to Bloomberg Intelligence analyst Anurag Rana.

“This year has been great because of the accounting change, but that particular boost hides the fact that gross margin is being hurt by the faster-growing Azure business,” Rana said before the results.

In the Productivity Unit, which consists primarily of Office software, revenue was $14.7 billion, compared to an average analyst estimate of $14 billion. LinkedIn, which Microsoft acquired in 2016, became the third company in three years to reach $10 billion in annual revenue, Hood said, and Teams, the Microsoft product that competes with Slack Technologies Inc., reached 250 million monthly active users, a huge jump from the 145 million the company reported in April.

Sales of Intelligent Cloud products, comprising Azure and server software, rose to $17.4 billion, ahead of analyst expectations for $16.4 billion in revenue.

In the More Personal Computing unit, which includes products such as Windows, Surface and Xbox, revenue was $14.1 billion. Analysts had expected $13.9 billion. Sales of Windows software sold to PC manufacturers fell 3%, a decline that reflects the surge in laptop purchases in the same quarter a year earlier, when Covid-19 lockdowns forced many workers to leave work. to renounce.

Total game revenues are up 11% in the past period, Microsoft said, with Xbox hardware sales more than doubling. A global semiconductor shortage has curbed Xbox console sales after the release of a new machine late last year, and growth in video game and gaming services declined 4% in the quarter compared to the pandemic-strengthened year ago.

Shortages in components also detract from PC and Surface availability, Hood said. Surface sales were down 20% in the quarter. Hood expects the effects of chips and parts shortages to continue into the new fiscal year, which began July 1.

(Updates with comments from the CFO starting from the seventh paragraph.)

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