A boom in demand for its cloud services more than adequately offset a decline in sale of its PCs because of the global chip shortage helped Microsoft Corp to post its most profitable quarter on Tuesday as it comfortably beat expectations of Wall Street for revenue and earnings.
Microsoft predicted a continuation of the growth in its Azure cloud computing business after a quarter for which the company reported a 51 per cent rise in sales.
On the overall, the company reported a 21 per cent rise in revenues for the quarter to $46.2 billion as the number comfortably beast estimates of analysts of about $2 billion, according to IBES data from Refinitiv.
Consumer appetite for cloud-based computing has increased due to the pandemic-driven shift to remote work and has been beneficial for companies including Microsoft, Amazon.com Inc’s cloud unit and Alphabet Inc’s Google Cloud.
Microsoft’s “guidance was off-the-charts strong and it shows the cloud growth story in Redmond is hitting its next gear,” said Daniel Ives of Wedbush Securities.
Microsoft reported a 30 per cent growth in revenues from its “Intelligent Cloud” segment at $17.4 billion, while revenue growth in Azure revenues also beat the 43.1 per cent growth predicted by analysts, according to consensus data from Visible Alpha.
After rising by almost 30 per cent so far this year, the market capitalization of Microsoft now stands at nearly $2.2 trillion. The wider S&P 500 Index rose by 18 per cent in the same period.
The price-to-earnings ratios of Microsoft is now higher than those of tech titans Apple Inc and Google which has raised concerns among some analysts that the value could be overvalued.
“Microsoft’s stock has made a big run since the beginning of the pandemic, and is trading at rich multiples,” said Haris Anwar, senior analyst at Investing.com. “After such a powerful rally, its shares may take a breather, especially when investors are still unclear how the demand scenario will evolve in the post-pandemic environment.”
There was only a 9 per cent growth in the revenue from personal computing, which includes Windows software and Xbox gaming consoles, at $14.1 billion.
There was however a drop in revenues from the company’s Xbox content and services segment which suggests that there is a waning of the pandemic-fueled gaming boom, according to Paolo Pescatore, an analyst at PP Foresight. To better compete with rivals, Microsoft needs to strengthen its presence in the home, he added.
Microsoft has also been affected by the global chip shortage.
“OEM revenue declined 3% and Surface declined 20%,” Microsoft Chief Financial Officer Amy Hood said on a call with analysts. She added that “both were impacted by the significant supply constraints noted earlier in a good demand environment.”
Ives said that the drop in revenues of Xbox content and services could also be because of the chip shortage because a drop in gardware sale also potentially led to a drop in services sale.
“If there’s any lagging part of Microsoft, it’s the consumer piece,” he said. “I think that continues to be a work in progress.”
(Adapted from NDTV.com)