Microsoft (MSFT) Posts Strong Earnings Growth While Azure Growth Rate Falls

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by Teuta Franjkovic · 3 min read
Microsoft (MSFT) Posts Strong Earnings Growth While Azure Growth Rate Falls
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Microsoft beat analyst estimates in fiscal Q1 earnings, reporting earnings of $1.38 per share on revenue of $33.1 billion. Microsoft’s Azure cloud computing business reported 59 percent revenue growth.

Tech-giant Microsoft released its earnings report from their first quarter on Wednesday but MSFT stock hasn’t shown any bigger movements. At the time of writing, however, the stock in premarket went up by 0.64% to $137.24.

The results were better-than-expected meaning earnings came to $1.38 per share, excluding certain items. Analysts expected $1.25 per share. Revenue was $33.06 billion that was slightly more than analysts’ expectations of $32.23.

Revenue grew 14% in the first quarter of Microsoft’s 2020 fiscal year, which ended on September 30.

As per the statement, the Azure public cloud business had 59% revenue growth, which is slightly less than the 64% growth it had in the previous quarter. Microsoft hasn’t revealed Azure revenue in dollar figures.

Analysts at Evercore, that had the equivalent of a buy rating on Microsoft stock, said last week in the note to their clients that they had been expecting 64% Azure growth in the fiscal first quarter. Even though it is growing, Azure’s growth rate has generally been declining.

Amy Hood, Microsoft’s chief financial officer said:

“We do continue to expect Azure, especially on the consumption side, gross margins to improve.”

Hood predicted $12.45 billion to $12.65 billion from goods sold in the fiscal second quarter. Just for comparison, analysts of FactSet had expected an average of $13.37 billion. She added that commercial revenue from service contracts and device makers outperformed Microsoft’s expectations.

The top business segment in the fiscal first quarter was More Personal Computing, which is composed of Windows, Surface, search ads and gaming, had $11.13 billion in revenue. FactSet predicted $10.90 billion.

Commercial Windows revenue from device constructors rose 19% before the support for Windows 7 ends in January next year. Two weeks ago, both Gartner and IDC pointed to the Windows 10 upgrade cycle when reporting growth in PC shipments in the quarter.

Revenue from Windows commercial products and cloud services rose by big 26%. Just for comparison, a year earlier the growth rate was 12%. Microsoft said the change is due to more agreements on Microsoft 365 that includes Windows 10, Office 365 services and also mobile and security tools.

Microsoft’s Productivity and Business Processes unit, that has Office, LinkedIn and Dynamics, made $11.08 billion in revenue. The FactSet predicted $10.88 million. Office 365 commercial seat rise was a bit slower – 21% amid Microsoft’s passing 200 million Office 365 monthly active users. Microsoft reported a 9.5% increase of Office 365 subscribers, that is now 35.6 million.

The Intelligent Cloud segment, that has Azure together with Windows Server, SQL Server, System Center, GitHub and consulting, made $10.85 billion in revenue. The FactSet prediciton was $10.42 billion.

In the fiscal first quarter, Microsoft reported LinkedIn would move to Azure, and announced the buying of cloud migration company Movere, data security company BlueTalon and retail advertising company PromoteIQ.

Two weeks ago Jefferies analysts gave an upgrade to MSFT stock to buy from the equivalent of a sell rating. They wrote:

“We see a large diversified business with excellent visibility that has a clear line of sight into double-digit rev growth for the foreseeable future.”

They also added that the Azure, Office business and LinkedIn should be looked after as the opportunities for possible growth.

In September Microsoft said it would stop revealing its gaming revenue in earning sheets, and would show revenue growth from Xbox content and services instead. However, it still has gaming revenue written down in its quarterly financial filing with the SEC.

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Teuta Franjkovic

Experienced creative professional focusing on financial and political analysis, editing daily newspapers and news sites, economical and political journalism, consulting, PR and Marketing. Teuta’s passion is to create new opportunities and bring people together.

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