Earnings Results: Microsoft earnings top $20 billion in a quarter for first time, stock heads toward record high

United States

Microsoft Corp. shares closed just shy of a record Tuesday, but the software giant still set an impressive new high after the session that pushed the shares toward a new peak.

Microsoft MSFT, +0.64% reported fiscal first-quarter earnings of $ 20.5 billion, or $ 2.71 a share, up from $ 1.82 a share a year ago and topping its quarterly profit record — set in the previous period — by more than $ 4 billion. Microsoft noted that about $ 3.3 billion of its profit was due to a one-time income-tax benefit related to the transfer of intangible products, but said earnings without that benefit would have been $ 2.27 a share, still easily higher than expectations.

Revenue increased to $ 45.3 billion from $ 37.15 billion, as cloud sales jumped by almost $ 4 billion from a year ago and personal-computer revenue handily beat expectations despite a reported slowdown in PC shipments. Analysts on average had predicted earnings of $ 2.08 a share on sales of $ 44 billion, according to FactSet.

Shares gained more than 1% in after-hours trading following the release of the results after closing with a 0.6% gain at $ 310.11, just shy of its record close of $ 310.76 established last week. Shares would hit a new record if those gains last through Wednesday’s session.

“Digital technology is a deflationary force in an inflationary economy,” Chief Executive Satya Nadella said in a statement. “Businesses — small and large — can improve productivity and the affordability of their products and services by building tech intensity.”

Cloud was the biggest driver of growth at Microsoft, as it has been regularly since Nadella took over the company from Steve Ballmer. The company’s “Intelligent Cloud” segment, which includes Azure as well as on-premises server sales and other items, increased to sales of $ 16.96 billion from $ 12.99 billion a year ago, while analysts on average were expecting $ 16.57 billion, according to FactSet.

Microsoft said that Azure revenue grew 50% from a year ago; the company does not break out total revenue or profit figures for Azure, even though its main competitors in cloud computing — Amazon.com Inc.’s AMZN, +1.68% Amazon Web Services and Alphabet Inc.’s GOOGL, +1.35% GOOG, +0.65% Google Cloud — provide those figures to investors. Analysts on average were expecting 49% growth for Azure, though the question of how long it can sustain those type of growth numbers remains a point of contention for many analysts.

Microsoft’s traditional personal-computer business grew to sales of $ 13.3 billion from $ 11.85 billion a year ago, despite a reported slowdown in PC shipments. Microsoft introduced Windows 11 this year and launched the new operating system earlier this month, and also counts sales of its new Xbox Series X in the “More Personal Computing” segment, from which analysts on average expected sales of $ 12.68 billion, according to FactSet.

Microsoft’s cloud-software division grew to sales of $ 15.04 billion from $ 12.32 billion a year ago, topping analyst estimates for $ 14.7 billion, as the company plots the biggest price increase for its signature Office software since it transitioned the enterprise software to cloud delivery years ago. Microsoft expects to raise prices more than 10% on many Office 365 services starting in March, and may already be adding on to other offerings’ price tags, according to UBS analysts who said they found other increases while chatting with Microsoft customers.

“In our view, Microsoft seems to be raising price points across several product categories, not just Office 365,” wrote the analysts, who have a “buy” rating and 12-month price target of $ 350 on the stock. “Checks argued that ‘demand is so strong right now, Microsoft can get away with it.’”

In a conference call Tuesday afternoon, Microsoft Chief Financial Officer Amy Hood forecast fiscal second-quarter revenue of $ 50.15 billion to $ 51.05 billion, while analysts had been forecasting $ 48.97 billion on average, according to FactSet. Hood said she expects sales of $ 18.1 billion to $ 18.35 billion in “Intelligent Cloud”; $ 15.7 billion to $ 15.95 billion in “Productivity and Business Solutions”; and $ 16.35 billion to $ 16.75 billion in “More Personal Computing,” all of which topped analysts’ average projection for the segments.

Hood noted that forecast does not include any contribution from Nuance Communications Inc. NUAN, -0.05%, which Microsoft has agreed to acquire for nearly $ 20 billion, a deal that had been projected to close before the end of the calendar year. Hood said Tuesday that “we now expect to close by the end of Q2 or early Q3,” suggesting that the closing could take place early next year.

The stock has gained 39.2% so far this year, as the S&P 500 index SPX, +0.18% has increased 21.6% and the Dow Jones Industrial Average DJIA, +0.04% — which counts Microsoft as a component — has moved higher by 16.8%.