Microsoft generates $51.7 billion in quarterly revenue as cloud, gaming and PC sales grow

Microsoft Corp stock recovered from an early decline and rose nearly 3% in after-hours following a second-quarter financial report that saw the company beat expectations on earnings and revenue.

The company reported net profit for the quarter of $18.8 billion, up 21% from a year ago, to $2.48 per share. Total revenue increased 20%, to $51.7 billion, compared to last year. It was a solid performance, with Wall Street expecting Microsoft to report earnings of just $2.31 per share on revenue of $50.9 billion.

Microsoft Chairman and CEO Satya Nadella (pictured) said the company is capitalizing on the fact that technology as a percentage of global GDP continues to rise. “We innovate and invest across diverse and growing markets with a common core technology suite and operating model that promotes a common strategy, culture and sense of purpose,” he said.

Microsoft’s stock initially fell in the minutes after its report was first published, with investors likely slightly upset that the company’s cloud business was not doing better. The company said its smart cloud segment, which includes Azure public cloud, GitHub and products such as Windows Server, generated $18.33 billion in revenue. That was just above Wall Street consensus of $18.3 billion, which represents 25.5% growth.

Microsoft said its revenue from “Azure and other cloud services” rose 46%. This is better than the public sector, but worse than the previous four quarters, where growth was above 50%.

Microsoft’s cloud hotline has softened somewhat, and investors will take notice, Lee Sostar, an analyst with Forrester, told SiliconANGLE. He predicted that the slowdown could be caused by organizations adjusting their spending on cloud services in the wake of the pandemic-induced spike, or that some companies might simply hedge their bets with other cloud providers, adopting a true multicloud strategy.

“However, the 46% growth rate indicates that large consumers of IT infrastructure – in both the public and private sectors – are adopting a cloud-first approach to IT spending,” said Sostar. “This will continue to benefit Microsoft.”

Elsewhere, Microsoft has enjoyed steady growth in the personal computing sector. The business, which includes revenue from Windows and sales of hardware, advertising and games, reported sales of $17.47 billion, up 15.5% and above the consensus estimate of $16.56 billion.

Microsoft said Windows licensing sales rose 25% last quarter, a performance that looks decent at a time when Gartner Inc. PC shipments were down 5%.

Microsoft’s Xbox revenue rose 4%. Its gaming business now accounts for more than 11% of the company’s total revenue, perhaps highlighting why Microsoft is so eager to spend $68.7 billion to acquire Activision Blizzard Inc. During the quarter – its biggest deal ever.

In a call with analysts, Nadella said the Activision purchase will help consumers play games wherever and however they want. The deal will effectively shape the future of gaming, Nadella said, without going into details.

Holger Muller of Constellation Research said the acquisition of Activision indicates that Microsoft has a strategy for its next level of growth in the manufacturing process. “The company is in good shape with all KPIs up more than 20%,” he said. “This is not something that a few years ago investors would have expected from Microsoft in the 1920s.”

Another major part of Microsoft is the Productivity and Business Operations module, which includes Office, Dynamics, and LinkedIn. The segment reported revenue up 19% from a year ago, to $15.94 billion, ahead of analyst expectations.

Charles King, an analyst at Pund-IT Inc, said Microsoft’s volatility was likely the result of a broader swoon in the US and global financial markets amid inflationary trends and ongoing supply chain problems.

“In other circumstances, the quarter-to-quarter decline in Microsoft’s revenue and Azure cloud services growth may have been overlooked,” King said. “Despite these problems and challenges, Microsoft’s leadership across many business and consumer markets and its overall financial strength provide a much stronger foundation than many of its peers. This should help Microsoft maintain its position until markets return to balance.”

Microsoft had a busy quarter. Besides buying Activision, it also found time to launch Windows 11, the successor to Windows 10, and agreed to a deal to acquire AT&T Inc’s ad technology company.

For guidance, Microsoft said it expects third-quarter revenue of $48.5 billion on the low end and $49.3 billion on the high end of its estimates. This compares well with Wall Street’s forecast of just $48.23 billion.

Photo: Fortune Brainstorm TECH / Flickr

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