Microsoft Corp on Tuesday met analysts’ quarterly sales expectations and beat profit estimates, but its shares fell slightly reflecting some skepticism about one-off benefits included in the results and high hopes after a year-long rally.
By grabbing market share in the booming market for cloud computing and expanding business services such as its Teams collaboration service and LinkedIn social network, the Redmond, Washington company has become one of the world’s most valuable companies, worth close to $2 trillion after a 50% stock run up over the past year.
Those services were still in demand during the pandemic, with Microsoft’s Azure cloud service closing ground on market-share leader Amazon Web Services and growing 50% in the quarter.
People working and studying from home bought new PCs and video consoles, spurring Microsoft Windows operating system and video game businesses.
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Net income for the third quarter ended March 31 jumped 44% on a year ago to $15.5 billion.
Revenue and adjusted earnings per share were $41.7 billion and $1.95 per share, above analysts’ estimates of $41.03 billion and $1.78 per share, according to data from Refinitiv.
Shares fell 2.5%, paring some deeper losses after executives gave a better-than-expected forecast during a conference call with investors.
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“One-off tax and currency advantages have boosted Microsoft’s third-quarter numbers, and as a result the market isn’t being quite as welcoming of expectation-beating numbers as you might expect,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown. Net profit had included a favorable $620 million tax benefit from court rulings in India.
“That is the danger of trading on the kind of valuation Microsoft enjoys, 32.8 times next year’s earnings. Disappoint even a little and the market will be unforgiving.”
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Sales for what Microsoft calls its “commercial cloud” – which contains server infrastructure such as Azure along with cloud-based versions of its Office software – was up 33% at $17.7 billion.
Sales for Dynamics 365 customer management, which competes directly with Salesforce.com (CRM.N), rose 45% and the business version of Office 365 added 15% more users.
Microsoft’s personal computing unit, which contains its Windows operating system and Xbox gaming console, had $13.0 billion in sales, compared with analysts’ expectations of $12.57 billion, according to Refinitiv data. Sales of Windows to PC makers were up 10%, compared to a 1% rise the quarter earlier.