Investors will be watching for news about Microsoft’s purchase of Activision Blizzard.
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Microsoft is providing tech investors with some badly needed good news, reporting better-than-expected results for its fiscal third quarter ended March 31.
After some initial volatility, the stock is trading higher after hours. It’s being boosted by a strong outlook for the June quarter, despite Microsoft expressing some concerns about Covid shutdowns in Chinese factories affecting hardware.
For the March quarter, Microsoft (ticker: MSFT) posted revenue of $49.4 billion, up 18% from a year ago, and well above the Wall Street consensus forecast of $47.5 billion. The company earned $2.22 a share in the quarter, beating the Wall Street consensus by three cents a share.
Microsoft noted that results were reduced by about three cents a share by unfavorable exchange rates, while the recent acquisition of Nuance Communications trimmed profits by about a penny a share. Neither of those factors was reflected in previous company guidance. Microsoft has suspended new sales in Russia, but the company previously said that sales in the country are well under 1% of total company revenue.
Microsoft said commercial bookings in the quarter were better-than-expected, up 28% from a year ago, or 35% adjusted for currency. The company’s commercial cloud business, which includes Azure, Office 365 Commercial, LinkedIn’s commercial business and Dynamics 365, had combined revenue of $23.4 billion, up 32%.
Microsoft had solid results in all three of its business segments.
Revenue in the Productivity and Business Processes segment, which includes Office and other applications, was $15.8 billion, up 17%, toward the top of the company’s guidance range of $15.6 billion to $15.85 billion, and just ahead of the Wall Street consensus for $15.75 billion.
For the Intelligent Cloud segment, which includes the company’s Azure cloud business, revenues were $19.1 billion, up 26%, ahead of both the company’s guidance range of $18.75 billion and $19 billion, and the Wall Street consensus at $18.89 billion. The company’s Azure cloud computing business grew 46% in the quarter, or 49% in constant currency.
For the More Personal Computing segment, which includes Windows, Surface and Xbox, revenue was $14.5, likewise ahead of both the company’s guidance range of $14.15 billion to $14.45 billion, and the Wall Street forecast of $14.3 billion.
Revenue was up 34% at LinkedIn, while search and new ad revenue ex-traffic acquisition costs was up 23%. Microsoft doesn’t routinely disclose the size of its overall ad business; last quarter the company noted that on a trailing 12 months basis, the combined ad business had topped $10 billion.
Surface hardware revenue was up 13%, while Xbox hardware revenue was up 14%. Windows Commercial products revenue was up 14%, while Windows OEM revenue, from sales to PCs sold at retail was up 11%. Office commercial products were up 12%, while Office consumer revenue was up 11%.
On a conference call with investors, CFO Amy Hood projected better-than-expected results for the June quarter.
She sees revenue for the company’s Productivity and Business Processes segment of between $16.65 billion and $16.9 billion, at the midpoint of the range ahead of the Street consensus at $16.68 billion. For Intelligent Cloud, she projects revenue of between $21.1 billion and $21.35 billion, ahead of consensus at $20.9 billion.
For the More Personal Computing segment, she’s projecting a range of $14.65 billion to $14.95 billion, a little below the Street consensus at $14.96 billion, reflecting current Covid-related manufacturing shutdowns in China, which affects both Surface and Xbox hardware, and software sales to PC manufacturers.
Overall, the segment guidance implies a total revenue range of $52.4 billion to $53.2 billion, at the midpoint about in line with Street estimates.
Hood said that currency headwinds would reduce revenue in the quarter by about 2 percentage points. She also noted that the June results will include a full quarter of Nuance results. Hood added that results would be reduced by about $110 million from suspending sales in Russia.
Microsoft said it repurchased $7.8 billion of its common stock in the quarter.
In volatile after hours trading, Microsoft shares were up 6%, after they fell 3.7% in Tuesday’s regular session.
Heading into the earnings report tonight, Microsoft shares had been down about 20% year to date.
Write to Eric J. Savitz at [email protected]
