Microsoft Corp. eclipsed profit and sales estimates and produced stronger-than-expected revenue across all of its business segments in an earnings report Tuesday, but shares still dipped initially after the results were released.
Microsoft
MSFT,
-3.74%
reported fiscal third-quarter earnings of $16.73 billion, or $2.22 a share, up from $2.03 a share a year ago. Revenue increased to $49.36 billion from $41.71 billion in the same period last year. Analysts on average were expecting earnings of $2.19 a share on sales of $49 billion, according to FactSet.
Microsoft shares dipped more than 2% in after-hours trading immediately following the release of the results, but then bounced back to slight gains in choppy action. The stock had closed with a 3.7% decrease at $270.22.
Microsoft’s software business increased sales by more than $2 billion after the company substantially raised prices across the board on its popular Office 365 suite of products for the first time since moving to a cloud offering for it a decade ago. Sales in the “Productivity and Business Solutions” segment increased to $15.79 billion from $13.55 billion a year ago, while analysts on average were expecting $15.75 billion, according to FactSet.
The Office 365 price increase, announced last year, was supposed to go into effect at the beginning of March, but the company delayed the price increase for some customers. The actual result of the price increase could be hard to parse until Microsoft issues financial guidance, which typically happens in the company’s conference call. Jefferies analysts noted that customers may have jumped to lock in the lower prices by signing new deals before the price increase, which would be a boon for the third quarter, but could weigh on the company’s forecast for the rest of the year.
“Office may have benefited from a pull-forward given the price increases went into effect March 1, as some customers may have renewed before the increase. This strength may be a potential risk for Office upside the rest of this calendar year,” the analysts wrote in an April 18 note, while maintaining a buy rating and $400 price target.
Microsoft’s most lucrative segment is “Intelligent Cloud,” which includes its Azure cloud-computing product as well as sales of servers and other on-premises products. The cloud segment reported revenue of $19.05 billion, up from $15.19 billion a year ago, while analysts on average were predicting $18.89 billion. Microsoft said Azure revenue increased by 46%; the company does not break out revenue specifically for Azure, even though rivals Amazon.com Inc.
AMZN,
-4.58%
and Alphabet Inc.
GOOGL,
-3.59%
GOOG,
-3.04%
state sales for their competitive platforms, Amazon Web Services and Google Cloud, respectively.
Microsoft’s “More Personal Computing” segment grew to sales of $14.52 billion from $13.04 billion a year ago, despite fears that a pandemic boom in personal-computer sales has come to an end. Analysts had predicted sales of $14.3 billion on average, and forecasts for the fourth quarter suggest slower growth in the segment is on the horizon.
Microsoft executives plan to host a conference call at 5:30 p.m. Eastern, which is typically when they share their forecast, which has been known to be the driving force behind stock movement in the wake of an earnings report for the company. Three months ago, for instance, Microsoft stock reversed a post-earnings decline after their guidance topped expectations.
Microsoft shares have fallen 19.7% so far this year, as the S&P 500 index
SPX,
-2.81%
has declined 9.9%. The decline has Microsoft in danger of falling lower than a $2 billion market capitalization for the first time since June 2021, according to FactSet data; at the closing price, Microsoft had a valuation of about $2.03 trillion.