Microsoft Corp posted its most profitable quarter on Tuesday, beating Wall Street expectations for revenue and earnings, as demand soared for the software giant’s cloud-based services.
However, its shares dipped 2.8% in after-hours trading, following the company’s year-to-date run of 30% that left investors with high expectations for the quarter.
The pandemic-driven shift to remote work has boosted consumer appetite for cloud-based computing, helping companies including Microsoft, Amazon.com Inc’s cloud unit and Alphabet Inc’s Google Cloud.
Revenue in its “Intelligent Cloud” segment rose 30% to $17.4 billion, with 51% growth in its Azure cloud-computing business, in the fourth quarter ended June 30. Analysts had expected 43.1% growth in Azure, according to consensus data from Visible Alpha.
“It’s a very impressive report from Microsoft with the company easily surpassing expectations on the performance of almost all business units,” said Haris Anwar, senior analyst at Investing.com.
He noted Azure’s growth and strong demand for the company’s legacy Office and software products.
“That said, Microsoft’s stock has made a big run since the beginning of the pandemic, and is trading at rich multiples,” Anwar said. “After such a powerful rally, its shares may take a breather, especially when investors are still unclear how the demand scenario will evolve in the post-pandemic environment.”
Microsoft’s market capitalization stands at nearly $2.2 trillion, fueling concerns among some analysts that it may be overvalued. The stock has climbed nearly 30% so far this year, compared with 18% for the overall S&P 500 Index, according to Refinitiv Eikon data based on Monday’s closing price.
Revenue from personal computing, which includes Windows software and Xbox gaming consoles, rose 9% to $14.1 billion.
But Xbox content and services revenue dipped, suggesting that a pandemic-fueled gaming boom is beginning to wane, said Paolo Pescatore, an analyst at PP Foresight. The company must strengthen its presence in the home to better compete with rivals, he added.
Some Microsoft hardware lines were affected by a shortage of components such as chips, said Kyle Vikstrom, director of Microsoft investor relations. Makers of cars to smartphones have grappled with an unprecedented chip shortage in recent quarters.
“We are seeing supply chain constraints that are impacting Windows OEM and Surface … and also impacting Xbox consoles,” she said.
The chip shortage could also be contributing to Microsoft’s dip in Xbox content and services revenue, as constrained hardware sales lead to a weaker performance in services, said Daniel Ives of Wedbush Securities.
“If there’s any lagging part of Microsoft, it’s the consumer piece,” he said. “I think that continues to be a work in progress.”
Revenue rose 21% to $46.2 billion, beating analysts’ consensus estimate of $44.24 billion, according to IBES data from Refinitiv. The company reported earnings of $2.17 per share, above the consensus estimate of $1.92.
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