Sales of Microsoft Corp. topped $50 billion for the first time in the holiday quarter of 2021, and a late-trade decline in stocks reversed on Tuesday after the software giant predicted higher earnings in the quarter in course than analysts had expected.
reported second-quarter earnings of $18.8 billion, or $2.48 per share, from $2.03 per share a year ago, and revenue jumped to $51.73 billion from 43 .08 billion a year ago. Analysts on average had expected earnings of $2.32 per share on sales of $50.71 billion, according to FactSet.
Shares fell more than 5% in after-hours trading after the earnings release, but reversed for a 1.2% gain after Chief Financial Officer Amy Hood shared Microsoft’s forecast during a a conference call on Tuesday afternoon. Hood said Microsoft expects third-quarter revenue of $48.5 billion to $49.3 billion, beating average analyst expectations of $48.11 billion, according to FactSet. and provided sector guidance that met or exceeded average analyst expectations.
Microsoft’s earnings came just over a week after the software giant announced plans for the biggest tech acquisition ever, a $69 billion bid for embattled video game maker Activision Blizzard. Inc. ATVI,
Activision would add to the company’s More Personal Computing segment, which includes the company’s Xbox division as well as the traditional PC business and set a quarterly sales record at $17. 47 billion, compared to $15.12 billion in the holiday quarter a year ago. Analysts on average had expected revenue of $16.62 billion, according to FactSet.
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While Microsoft is widely known to consumers for Windows and Xbox, investors have turned more to the company’s cloud business in recent years. Microsoft posted record revenue of $18.33 billion in its “Intelligent Cloud” segment, up from $14.6 billion a year ago and beating analysts’ average estimate of $18.31 billion. dollars, according to FactSet.
Microsoft reported that sales of its core cloud computing platform, Azure, increased by 46%; Microsoft does not report revenue for Azure, although Amazon.com Inc. AMZN,
and Google GOOGL from Alphabet Inc.,
regularly reveal the total revenues and operating profits of their rival cloud services. Analysts on average expected Azure to grow 45.3%, according to FactSet.
In a note following the report, Wedbush analyst Daniel Ives suggested that Wall Street expected stronger outperformance from Azure.
“The stock is selling after market as Azure growth hit 46% and beat the street at 45%, but was below some bullish numbers at 48%,” Ives wrote.
Hood may have been able to satisfy those investors on the conference call, calling for an acceleration in growth in the current quarter.
“In Azure, we expect sequential revenue growth in constant currency, driven by our Azure consumer business with strong growth on a material basis,” Microsoft’s chief financial officer said while providing her guidance for the third quarter, which predicted record Intelligent Cloud revenue of $18.75 billion to $19 billion, significantly exceeding the average analyst estimate.
The Intelligent Cloud segment is expected to receive a boost from another major Microsoft acquisition, Nuance Communications Inc. NUAN,
but that deal did not close until the end of the quarter, as executives had previously said possible, as part of a review by the UK Competition and Markets Authority. Hood said on the call that the deal is expected to close this quarter.
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Microsoft’s other revenue segment, “Productivity and Business Solutions,” had revenue of $15.94 billion, also a quarterly record. The segment that includes cloud software assets such as Office as well as LinkedIn professional network ownership grew from $13.53 billion a year ago and beat the average analyst estimate of $15.88 billion .
Microsoft stock closed 2.7% lower on Tuesday at $288.49 as markets suffered from another volatile trading day. Stocks have gained 25.7% over the past year, as the Dow Jones Industrial Average DJIA,
which counts Microsoft as a component, added 11%.