Microsoft stock turns green after strong sales forecast, reversing a post-earnings decline
Microsoft Corp. sales topped $50 billion for the first time in the holiday quarter of 2021, and a stock decline in late trading turned around Tuesday after the software giant predicted stronger revenue in the current quarter than analysts expected.
Microsoft MSFT,
Shares fell more than 5% in after-hours trading following the release of the results, but reversed to a gain of more than 1% after Chief Financial Officer Amy Hood shared Microsoft’s forecast in a conference call Tuesday afternoon. Hood said that Microsoft expects fiscal third-quarter revenue of $48.5 billion to $49.3 billion, topping the average analyst expectation of $48.11 billion, according to FactSet, and revenue guidance for each of the three revenue segments met or beat analysts’ average expectations.
Microsoft’s earnings arrived a little more than a week after the software giant announced plans for the largest tech acquisition of all time, a $69 billion offer for embattled videogame maker Activision Blizzard Inc. ATVI,
While Microsoft executives held a conference call after the Activision offer was announced, they took no questions and kept some information close to the vest. Cowen & Co. analysts wrote that they “expect to hear some additional color surrounding the Microsoft-Activision proposed acquisition” in a conference call later Tuesday, and were especially looking for information on how the videogame publisher could boost margins in the PC segment.
“Microsoft did not quantify potential financial synergies with Activision apart from
saying it will be accretive to EPS (upon closing, which could take as long as ~18 months),” the analysts, who have an outperform rating and $360 price target on the stock, wrote last week in an earnings preview. “Considering Activision generated 75% gross margins and 42% EBIT margins in CY21, we expect Activision to be margin-accretive to the [More Personal Computing] segment.”
See also: ‘Call of Duty’ will stay on Sony’s PlayStation console after Activision deal, Xbox boss promises
While Microsoft is largely known to consumers for Windows and Xbox, investors have keyed on the company’s cloud business more in recent years. Microsoft reported record revenue of $18.33 billion in its “Intelligent Cloud” segment, up from $14.6 billion a year ago and topping the average analyst estimate of $18.31 billion, according to FactSet.
Microsoft reported that sales for its core cloud-computing platform, Azure, grew 46%; Microsoft does not report revenue for Azure, even as Amazon.com Inc. AMZN,
In a note released in the wake of the report, Wedbush analyst Daniel Ives suggested that Wall Street expected stronger outperformance.
“The stock is selling off after market as Azure growth came in at 46% and beat the Street at 45% but was lower than some bullish whisper numbers at 48%,” Ives wrote.
The Intelligent Cloud segment is expected to receive a boost from another big-money Microsoft acquisition, Nuance Communications Inc. NUAN,
Opinion: The Big Tech earnings boom is over, and investors are now searching for safety
Microsoft’s other revenue segment, “Productivity and Business Solutions,” reported revenue of $15.94 billion, also a quarterly record. The segment that includes cloud-software assets such as Office as well as the LinkedIn professional-networking property grew from $13.53 billion a year ago and beat the average analyst estimate of $15.88 billion.
Microsoft stock closed with a 2.7% decline Tuesday at $288.49 as markets suffered through another volatile trading day. Shares have gained 25.7% in the past year, as the Dow Jones Industrial Average DJIA,
