Boost in demand for its cloud and remote collaboration tools because of the work from home orders issued during the novel coronavirus pandemic helped Microsoft to easily beat earning expectations by analysts for the latest completed quarter.
For the three months ended in June, a 13 per cent year on year growth in revenues was reported by Microsoft on Wednesday at $38 billion which as comfortably beat expectations of analysts at Wall Street at $36.5 billion.
The company also comfortably beat analysts’ estimates for earnings per share of $1.34 per share as it reported earnings of $1.46 per share.
“The last five months have made it clear that tech intensity is the key to business resilience,” CEO Satya Nadella said in a release. “Organizations that build their own digital capability will recover faster and emerge from this crisis stronger.”
Microsoft’s “intelligent cloud,” “more personal computing” and “productivity and business processes” divisions were boosted by the continued work-from-home trend during the quarter.
There was a 6 per cent year on year growth in revenues generated from the productivity and business processes segment at $11.8 billion which was driven by a 19 per cent growth in sales of Office 365 Commercial, said the company. There was also a 17 per cent year on year growth in revenue in the intelligent cloud division at $13.4 billion. And personal computing sales were up 14% to $12.9 billion.
Despite this estimate beating performance, the stocks of the company dropped by 2.5 per cent in after-hours trading.
One of the potential concerns of investors was the slowdown in growth in the company’s crucial Azure cloud business as it competes with market leader Amazon Web Services. During the second quarter, there was a 47 per cent year on year growth in the sale of Azure which was slower than the 59 per cent year-over-year growth the business had made in the preceding quarter.
Some possible hick ups for Microsoft are also being foreseen by investors. In the short term, spending on IT by companies could be reduced if there is a second wave of shutdowns in many parts of the world and the global recession, which would hurt Microsoft.
During the quarter, there was slowdown in business license purchasing, Microsoft said, a small and medium businesses suffered from the economic hit of the pandemic. A reduction in ad spending by companies also bit Microsoft’s search business.
The company however sees some positive in the longer term with an expected updating of digital capabilities by businesses with greater focus and demand for remote working with Covid-19 cases rising again in many parts of the world and particularly in the United States.
For the quarter, Microsoft reported a 13 per cent increase in its operating expenses which include a $450 million charge related to the plan Microsoft announced last month to close all 83 of its brick-and-mortar retail stores.
“Right now, what I would like us to focus on, in the interest of our long-term investors, is to say: How can we build this modern tech stack so that it can really … help customers transform, be resilient, and help us to get into new categories and build a strong position in those categories,” Nadella said on a call with analysts Wednesday.
“My own approach to this would be not to worry as much about short term, whether it’s the growth number … nor are we trying to think about a margin target, because in some sense, the world needs to do well for us to do well in the long run. And I think the world will come out of this, and we will be stronger if we invest during this (time),” he added
(Adapted from CNN.com)