microsoft corp smashed earnings and sales estimates, posting stronger-than-expected earnings across all of its businesses in an earnings report on Tuesday, but shares still fell after the results were released.
Microsoft MSFT, -3.74% reported third-quarter earnings of $16.73 billion, or $2.22 per share, up from $2.03 per share a year ago. Revenue increased to $49.36 billion from $41.71 billion in the same period last year. According to FactSet, analysts on average were expecting earnings of $2.19 per share on sales of $49 billion.
Microsoft shares fell more than 2% in after-hours trading immediately after the results were released, but then rallied, recovering slightly amid choppy movement. The stock had closed down 3.7% at $270.22.
Microsoft’s software business increased revenue by more than $2 billion after the company significantly increased prices for its popular Office 365 suite of products for the first time since moving to a cloud offering a decade ago. Revenue in the Productivity and Business Solutions segment rose to $15.79 billion from $13.55 billion a year earlier, while analysts had averaged $15.75 billion, according to FactSet.
The Office 365 price increase announced last year was supposed to go into effect in early March, but the company delayed the price increase for some customers. The actual outcome of the price hike could be difficult to analyze until Microsoft releases a financial forecast, which it usually does on the company’s conference call. Jefferies analysts noted that customers may have secured the lower prices by signing new contracts ahead of the price increase, which would be a boon for the third quarter but could weigh on the company’s guidance for the rest of the year.
“Bureau may have benefited from a pull-forward effect as the rate increases went into effect on March 1 as some customers may have extended ahead of the increase. This strength could pose a potential risk for Office for the remainder of this calendar year,” the analysts wrote in a note April 18, while maintaining a Buy rating and a price target of $400.
Microsoft’s most lucrative segment is “intelligent cloud,” which includes its cloud computing product Azure, 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 had forecast $18.89 billion. According to Microsoft, Azure revenue increased 46%; The company doesn’t break down revenue specifically for Azure, although rivals Amazon.com Inc. AMZN, -4.58% and Alphabet Inc. GOOGL, -3.59%, GOOG, -3.04% reported revenue for their rival platforms Amazon Web Services and Google specify cloud and
Microsoft’s “More Personal Computing” segment grew to $14.52 billion in revenue from $13.04 billion a year ago, despite fears that a pandemic boom in personal computer sales was ending is. Analysts had forecast average revenue of $14.3 billion, and fourth-quarter forecasts suggest slower growth in this segment is on the horizon.
Microsoft executives plan to hold a conference call at 5:30 p.m. Eastern time, which is usually when they share their forecast, which is known to be the driving force behind stock movements following an earnings report for the company. Three months ago, for example, Microsoft stock reversed a post-earnings decline after its forecast beat expectations.
Microsoft shares are down 19.7% so far this year, while the S&P 500 index SPX is down -2.81%, down 9.9%. The decline puts Microsoft at risk of falling below a $2 billion market cap for the first time since June 2021, according to FactSet data; At the closing price, Microsoft was valued at approximately $2.03 trillion.