Microsoft’s earnings report after the bell on Tuesday showed revenue and profit growth in the company’s third fiscal quarter of fiscal 2022, as demand for its cloud services and software continued to climb as the pandemic triggered a shift to remote work.
In the quarter ended March, Microsoft’s revenue rose 18% from a year earlier to $49.4 billion, while net income rose 8% to $16.7 billion. Analysts had expected the company to generate about $49 billion in revenue for the quarter and about $16 billion in net profit.
Microsoft and other business software companies have seen a surge in sales during the pandemic as organizations around the world use more digital tools to aid remote work. This has increased demand for Microsoft Office applications and cloud infrastructure services.
Microsoft remains the No. 2 cloud infrastructure provider after Amazon.com Inc., but the company has been using its leadership in office applications to gain market share with the Azure cloud for big deals. In 2020, it captured nearly 20% of the market, according to research firm Gartner.
From the perspective of Microsoft’s revenue by business during the reporting period, Microsoft’s intelligent cloud division generated $19.05 billion in revenue, higher than the market’s previous expectations, and a year-on-year increase of 26%, of which Azure and other cloud services revenue increased by 46% . In addition, the personal computing business, which includes Windows, Xbox, search ads and Surface, recorded $14.5 billion in revenue, an increase of 11% year-on-year.
Growth in Azure, Microsoft’s cloud service, was previously thought to be less robust than expected, and there were fears that growth could slow after the previous quarter’s results were reported in January. Growth now appears to be back on track, analysts say, showing companies continue to invest in cloud services.
While geography, inflation and other factors have been hurting growth in many industries, Microsoft has shown few signs of slowing down. The company expects sales for the quarter to be between $52.4 billion and $53.2 billion, and analysts had expected sales of about $52.8 billion in the second quarter.
After the earnings report, Microsoft reversed its after-hours losses, extending gains to 4.5%.
Geographical factors are expected to impact the company’s sales for the quarter by about $110 million, Chief Financial Officer Amy Hood said.
Affected by the risk aversion, technology stocks suffered a general sell-off. Microsoft shares fell nearly 4% overnight, and the Nasdaq index also fell by 4%. The combination of geopolitical factors and the progress of the epidemic has exacerbated investors’ concerns about the global economy and triggered volatile trading in recent trading days. Inflation is weighing on businesses and consumers, while signs the Federal Reserve said it will tighten monetary policy quickly could weigh on growth.
Analysts said that in the latest phase of the outbreak, consumer spending shifted from tech-centric goods to in-person services, dampening investor enthusiasm for the sector. Jason Pride, chief investment officer at Glenmede Private Wealth Investments, said: “We may now realize that the future potential of tech companies that have experienced a lot of growth may be over-exaggerated.”
Among other tech stocks, shares fell after the close after Google parent Alphabet reported slower sales growth in the first quarter. Alphabet reported revenue growth in its cloud computing business, which is trying to catch up with Amazon and Microsoft. The cloud business remains an important area of investment for the company, but Google Cloud remains unprofitable.
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