There was some scepticism among investors about the one-off benefits that were included in the quarterly results and about the high hopes after a year-long rally resulting in a drop in Microsoft’s shares despite the company easily beating quarterly sales and profit expectations of analysts.
The Redmond, Washington company has become one of the most valuable companies of the world and was worth almost $2 trillion following a 50 per cent rise in its stocks over the past year because of the company increasing its maker share in the booming market for cloud computing while also expanding its business services division such as its Teams collaboration service and LinkedIn social network.
During the pandemic, those services were still in demand, as the Azure cloud service of the company closed its gap with the cloud computing market leader Amazon Web Services. Revenues from the Azure cloud service of the company rose by 50 per cent during the latest completed quarter. There was also surge in Microsoft Windows operating system and video game businesses because of people still people working and studying from home and hence purchased new PCs and video consoles.
There was 44 per cent year on year jump in the net income of the company for its third quarter ended March 31 at $15.5 billion. Revenue and adjusted earnings per share were $41.7 billion and $1.95 per share, which beat estimates of analysts of $41.03 billion and $1.78 per share, according to data from Refinitiv.
Stocks of the company fell by 2.5 per cent as it pared some deeper losses after executives gave a better-than-expected forecast during a conference call with investors.
“One-off tax and currency advantages have boosted Microsoft’s third-quarter numbers, and as a result the market isn’t being quite as welcoming of expectation-beating numbers as you might expect,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown. A favorable $620 million tax benefit from court rulings in India was also included in the net profits of the company.
“That is the danger of trading on the kind of valuation Microsoft enjoys, 32.8 times next year’s earnings. Disappoint even a little and the market will be unforgiving.”
There was a 33 per cent year on year rise, at $17.7 billion, in the sale of what Microsoft calls its “commercial cloud” – which contains server infrastructure such as Azure along with cloud-based versions of its Office software.
Sales for Dynamics 365 customer management, which competes directly with Salesforce.com surged by 45 per cent and the business version of Office 365 added 15 per cent more users.
“That’s the fourth consecutive quarter of 15% seat growth on a very large base,” Microsoft Chief Financial Officer Amy Hood said of the Office 365 results for commercial customers.
The focus of the company has continued to be on cloud-base software. Its plans of acquisition of the artificial intelligence software firm Nuance Communications Inc for $16 billion, excluding net debt, were announced by the company earlier this month. The company said that the deal would help it to expand its healthcare business.
(Adapted from RTE.ie)