Microsoft announced its most profitable quarter on Tuesday, surpassing Wall Street’s revenue and earnings expectations, as the decline in PC sales caused by global chip shortages was compensated by the boom in cloud services.
Microsoft expects that its Azure cloud computing business will continue to grow rapidly after a quarterly sales increase of 51%, and its stock price will rise 0.7%.
According to Refinitiv’s IBES data, total revenue increased by 21%, reaching 46.2 billion US dollars (approximately 3439.96 billion rupees), which is approximately 2 billion US dollars (approximately 148.892 billion rupees) higher than analysts’ expectations.
The pandemic-driven shift in remote work has increased consumer interest in cloud-based computing, helping companies including Microsoft, Amazon’s cloud division, and Alphabet’s Google Cloud.
Daniel Ives of Wedbush Securities said that Microsoft’s “guidance is very strong, and it shows that Redmond’s cloud growth story is entering the next phase.”
According to Visible Alpha’s consensus data, the revenue of Microsoft’s “smart cloud” division increased by 30% to US$17.4 billion (approximately Rs 1,295.65 billion). Azure revenue growth easily exceeded the 43.1% growth predicted by analysts.
According to data at the close of Refinitiv Eikon on Monday, Microsoft’s market value is close to US$2.2 trillion (approximately Rs 1,6381,491 crore), and it has risen by nearly 30% so far this year, while the S&P 500 index has risen by 18% in price as a whole.
It has already surpassed the P/E ratios of tech giants Apple and Google, raising some analysts’ concerns that it may be overvalued.
Haris Anwar, a senior analyst at Investing.com, said: “Since the beginning of the pandemic, Microsoft’s stock has been rising sharply and is trading at high multiples.” “After such a strong rebound, its share price It may take a breather, especially if investors still don’t know how demand will evolve in the post-pandemic environment.”
Personal computing revenue, including Windows software and Xbox game consoles, increased by 9% to 14.1 billion U.S. dollars (approximately 1,049 billion rupees).
However, the decline in Xbox content and service revenue indicates that the game boom driven by the pandemic is beginning to weaken, said Paolo Pescatore, an analyst at PP Foresight. He added that the company must strengthen its domestic influence to better compete with competitors.
As car and smartphone manufacturers deal with unprecedented chip shortages, Microsoft has not been spared either.
“OEM revenue dropped by 3% and Surface dropped by 20%,” Microsoft Chief Financial Officer Amy Hood said in a conference call with analysts. She added, “Both are affected by the severe supply constraints that appeared earlier in a good demand environment.”
Ives said that the chip shortage may also lead to a decline in Microsoft’s Xbox content and service revenue, because of limited hardware sales and weak service performance.
“If Microsoft has any lagging part, it is the consumer part,” he said. “I think this is still a work in progress.”
Microsoft expects the professional social network LinkedIn to grow strongly, and the company benefited from strong advertising and a strong job market this quarter.
The company reported earnings per share of 2.17 US dollars (approximately 162 rupees), higher than the consensus estimate of 1.92 US dollars (approximately 143 rupees).
© Thomson Reuters 2021