Microsoft Corp. closed another record year with earnings of more than $60 billion and revenue of $165 billion, demonstrating why it has become only the second $2 trillion company in the history of the U.S. stock market.
on Tuesday it reported fiscal fourth quarter earnings of $16.46 billion, or $2.17 per share, up from $1.46 per share a year ago. The maker of Windows and other software products reported revenue of $46.15 billion, a quarterly record and an increase of $38.03 billion in the same quarter a year ago.
Analysts had expected earnings of $1.92 per share on average on revenue of $44.22 billion, according to FactSet. Microsoft shares fell 3% in after-hours trading following the release of the results, after falling 0.9% to $286.54 in regular trading on a tough day for technology stocks.
For the full year, Microsoft posted a profit of $61.27 billion on revenue of $168.09 billion, both easily surpassing records set in the previous fiscal year. Earnings exceeded expectations at the start of the year as Microsoft’s cloud computing and software offerings found needy customers in employers scrambling to transition to a work-from-home configuration due to the COVID-19 pandemic and are expected to continue to shift to online options.
“It is abundantly clear that Microsoft is well positioned to continue to capitalize on a number of secular trends driving current IT spending, including the increased focus on digital transformation and the accelerated shift to the cloud,” Evercore ISI software analysts wrote earlier this month. . in a foretaste of the industry.
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All of Microsoft’s segments delivered better-than-expected growth in the final three months of the company’s fiscal year, including the launch of a new Xbox and a new version of Windows. Productivity and Business Processes, which comprise the bulk of Microsoft’s cloud software offerings, grew to $14.69 billion in revenue from $11.75 billion a year ago, surpassing analysts’ average forecast of $13.93 billion. More Personal Computing, the traditional PC business, grew from $12.91 billion to $14.09 billion, beating the average analyst forecast of $13.78 billion.
The largest segment for Microsoft was “Intelligent Cloud,” which includes its Azure cloud computing offering with the sale of servers and other equipment needed for a hybrid cloud configuration. Microsoft reported record quarterly revenue of $17.38 billion in that segment, up from $13.37 billion a year ago and better than the average analyst estimate of $16.39 billion. The company said Azure sales grew 51%, easily surpassing the average analyst estimate of 44.7%; unlike cloud rivals Amazon.com Inc. AMZN,
and Alphabet Inc. GOOGL,
Microsoft does not provide rough numbers for its cloud computing offerings.
Analysts expect growth to continue into Microsoft’s new fiscal year, predicting ahead of the report that profits will grow to more than $63 billion and revenue will increase to $186.74 billion in fiscal 2022.
“As we move into FY22, we believe Microsoft’s fundamentals will be equally strong at any point in recent history,” Rosenblatt Securities analyst John McPeake, who has a buy rating and a $333 price target for the stock, wrote in a note. for the numbers. . “We think Azure continues to gain market share, PC demand remains robust,
and Office, Teams and Dynamics will likely continue to grow in double digits.”
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Microsoft did not share a forecast in the release, as executives typically share their advice in the company’s conference call, which is scheduled for 5:30 p.m. Eastern and is typically a secondary catalyst for the stock in the extended session after earnings are released.
For investors who are confident that Microsoft will continue to grow, the question is whether the share price will follow. Microsoft has already reached a market cap of $2 trillion this year thanks to a growth rate of 28.6% in 2021, easily surpassing SPX’s S&P 500 index growth by 17.7%.
and 14.8% increase in the Dow Jones Industrial Average DJIA,
which Microsoft counts as a part.
For Evercore ISI’s software analysts, the answer is clear: Just keep posting massive growth numbers and the stock will respond.
“The easy answer to how Microsoft will continue to outperform the S&P is that Microsoft will continue to deliver double-digit growth at the top and bottom,” the analysts wrote, which included an outperform rating and a $300 price target. on Microsoft stock.