Microsoft earnings beat expectations across the board, but the stock is still falling

Analysts on average expected earnings of $1.78 a share on sales of $41.04 billion, according to FactSet. Shares fell about 3.6% in after-hours trading following the release of the report, after closing at a record high for a third consecutive session with a 0.2% daily gain. Microsoft stock was on track for its sixth consecutive positive month, which would be its strongest streak since an eight-month streak that ended in January 2020.

Microsoft shares have largely been trading at or near record highs for months, amid strong gains for personal-computer sales, collaboration software and cloud-computing adoption during the COVID-19 pandemic. In the holiday season, Microsoft surpassed $40 billion in quarterly sales and $15 billion in quarterly profit for the first time, pushing shares to a then-record; it repeated the performance in the first calendar quarter of 2021, though revenue came up short of the record holiday-quarter sales.

Microsoft’s cloud-computing product, Azure, grew sales 50% in the first three months of the year, the company disclosed. Microsoft does not provide raw numbers for Azure performance, unlike rivals like Amazon.com Inc.’s AMZN, +0.25% Amazon Web Services and Alphabet Inc.’s GOOG, -0.84% GOOGL, -0.82% Google Cloud. The segment that includes Azure —which also wraps in sales of on-premises servers and other businesses — reported total revenue of $15.1 billion, up from $12.28 billion a year ago. Analysts on average expected “Intelligent Cloud” sales of $14.93 billion, according to FactSet.

Microsoft’s “Productivity and Business Solutions” segment, which includes Office and other cloud-software products, reported revenue of $13.6 billion, up from $11.74 billion a year ago. Analysts on average expected sales of $13.49 billion, according to FactSet. In the “More Personal Computing” segment, which includes Windows as well as Xbox and Surface revenue, Microsoft reported revenue of $13 billion, up from $11 billion a year ago. Analysts on average projected revenue of $12.55 billion, FactSet reported.

Analysts expect that the bump experienced by some Microsoft products as companies moved to a work-from-home environment will be replaced by those companies looking to reboot plans for large changes to its business overall.

“In many cases, we are seeing enterprises accelerate their digital transformation (larger deals) and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi-remote workforce for the foreseeable future looks here to stay and Redmond hits its next stage of growth in the cloud,” Wedbush analyst Dan Ives wrote in a preview of the earnings report last week.

“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning,” Chief Executive Satya Nadella said in Tuesday’s announcement.

Microsoft did not provide guidance for its fiscal fourth quarter in the announcement, and typically provides that information in its conference call. Executives have scheduled Tuesday’s conference call for 5:30 p.m. Eastern. Analysts on average were forecasting fiscal fourth-quarter earnings of $1.78 a share on sales of $42.98 billion.

Microsoft stock has gained 50.9% in the past year, as the Dow Jones Industrial Average DJIA, +0.01% — which counts Microsoft as a component — has increased 40.8% and the S&P 500 index SPX, -0.02% has moved higher by 45.6%.