Microsoft tops $10 billion in earnings - Push to cloud saves The Company from  coronavirus crash

Microsoft tops $10 billion in earnings - Push to cloud saves The Company from  coronavirus crash
  • The stock has gained 12.5% this year after a 4.5% gain in Wednesday’s regular trading session, while the S&P 500 index has declined 11.4% so far in 2020.
  • Azure grew to revenue of $12.28 billion from $9.65 billion a year ago, beating the average analyst prediction of $11.79 billion
  • Windows and Xbox businesses along with Surface hardware and some other properties, grew to $11 billion from $10.68 billion a year ago, topping the average analyst prediction of $10.46 billion.
  • For the fiscal fourth quarter, Microsoft expects revenue of $35.85 billion to $36.8 billion
  • Analysts on average were expecting sales of $36.52 billion, according to FactSet.

 

Push to  cloud  saves  a coronavirus crash

 When Satya Nadella arrived in 2014, he refocused Microsoft on the cloud, putting money and other resources into the Azure cloud-computing business and transitioning Microsoft’s software offerings to cloud subscription offerings. Those businesses are less likely to be slammed by economic difficulties for Microsoft’s customers than the legacy Windows and on-premises IT businesses that Microsoft still has.

“We’ve seen two years’ worth of digital transformation in two months,” Microsoft Corp. Chief Executive Satya Nadella said Wednesday.

Microsoft Corp. outperformed the financial expectations that it faced even before the coronavirus pandemic in an earnings report Wednesday, sending shares slightly higher in after-hours trading.

Microsoft reported fiscal third-quarter earnings of $10.75 billion, or $1.40 a share, on sales of $35 billion Wednesday, up from a profit of $1.14 a share on revenue of $30.57 billion a year ago.

Analysts on average expected earnings of $1.27 a share on sales of $33.76 billion, according to FactSet.

Expectations for most companies have been reduced amid the COVID-19 pandemic, though Microsoft ( the only Dow Jones Industrial Average component to see its stock gain in the first quarter, as the coronavirus spread around the globe) was expected to weather the storm better than most. Analysts on average were expecting earnings of $1.33 a share on sales of $34.55 billion as of the end of January, which Microsoft managed to top anyway.

“In the third quarter of the fiscal year 2020, COVID-19 had a minimal net impact on the total company revenue,” the company disclosed while admitting that some transactions along with advertising on LinkedIn and Bing slowed down toward the end of the quarter.

Microsoft shares rose more than 2% in after-hours trading, dipping from gains of more than 3% after Microsoft shared its outlook for the fourth quarter on a conference call. The stock has gained 12.5% this year after a 4.5% gain in Wednesday’s regular trading session, while the S&P 500 index has declined 11.4% so far in 2020.

Some of Microsoft’s core offerings, including the Azure cloud-computing business and Teams collaboration software, are expected to fare well as workers are forced to stay home and their companies need computing power and tools to support them. Many of those products are bundled with products that may not fare as well, however — for instance, Microsoft combines revenue from on-premises server sales with its Azure business.

 

What can we glean from Microsoft in the Age of COVID-19 Pandemic?

 In Wednesday’s report, the “Intelligent Cloud” segment that includes Azure grew to revenue of $12.28 billion from $9.65 billion a year ago, beating the average analyst prediction of $11.79 billion, according to FactSet. Microsoft said that Azure sales grew by 59% from a year ago;

“Productivity & Business Solutions,” which comprises most of the cloud software assets, including LinkedIn, grew to $11.74 billion from $11.52 billion a year ago, beating the average analyst prediction of $11.53 billion.

 “More Personal Computing,” which includes the Windows and Xbox businesses along with Surface hardware and some other properties, grew to $11 billion from $10.68 billion a year ago, topping the average analyst prediction of $10.46 billion.

For the fiscal fourth quarter, Microsoft expects revenue of $35.85 billion to $36.8 billion, according to segment forecasts provided by Chief Financial Officer Amy Hood on a conference call Wednesday afternoon. Analysts on average were expecting sales of $36.52 billion, according to FactSet.

 “While the company will navigate through this downturn better than most, it is not immune to a broader contraction in IT spending. The clear positives for Microsoft are the uptick in demand for Teams, cloud consumption (Azure), and Xbox Live. However, on the other side of the coin, PC demand, new enterprise bookings and higher potential churn for O365 subs could create some near-term headwinds.” — Evercore analysts