Microsoft reports earnings beat, says A.I. will drive revenue growth

Enterprises are consolidating around Microsoft, says D.A. Davidson's Gil Luria

Microsoft shares rose 9% in extended trading on Tuesday after the software maker issued fiscal third-quarter results and quarterly guidance that exceeded analysts’ predictions.

Here’s how the company did:

  • Earnings: $2.45 per share, vs. $2.23 per share as expected by analysts, according to Refinitiv.
  • Revenue: $52.86 billion, vs. $51.02 billion as expected by analysts, according to Refinitiv.

For the fiscal fourth quarter, Microsoft finance chief Amy Hood called for $54.85 billion to $55.85 billion in revenue, during a conference call with analysts. The middle of the range, at $55.35 billion, implies 6.7% growth, topping the $54.84 billion consensus among analysts surveyed by Refinitiv. Hood is bullish on artificial intelligence.

“As with any significant platform shift, it starts with innovation, and we’re excited about the early feedback and demand signals from the AI capabilities we’ve announced to date,” she said. “We will continue to invest in our cloud infrastructure, particularly AI-related spend, as we scale to the growing demand driven by customer transformation. And we expect the resulting revenue to grow over time.”

Net income rose 9% to $18.3 billion, or $2.45 per share, from $16.73 billion, or $2.22 per share, a year ago. Revenue increased 7% to $52.86 billion from $49.36 billion a year ago, according to a statement.

Microsoft CEO Satya Nadella speaks at the company’s Ignite Spotlight event in Seoul on Nov. 15, 2022.

SeongJoon Cho | Bloomberg | Getty Images

Revenue in Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, Enterprise Services, SQL Server and Windows Server, generated $22.08 billion in revenue. That’s up 16% and higher than the $21.94 billion consensus among analysts surveyed by StreetAccount.

Revenue from Azure and other cloud services grew by 27%, compared with 31% in the prior quarter. Analysts polled by CNBC had expected on average 26.5% growth, while those consulted by StreetAccount were looking for 27.2%.

The Productivity and Business Process segment containing Dynamics, LinkedIn and Office, posted $17.52 billion in revenue, up about 11% and above the StreetAccount consensus of $17.05 billion. Microsoft said growth in revenue per user helped the company achieve 14% more revenue from commercial Office 365 productivity software subscriptions.

The Teams communication app had over 300 million monthly active users in the quarter, CEO Satya Nadella said. That’s up from 280 million in the previous quarter.

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The More Personal Computing segment, featuring Bing, Windows, Surface and Xbox, delivered $13.26 billion in revenue, down 9% but more than the $12.25 billion StreetAccount consensus. Bing now has over 100 million daily active users, and revenue from gaming subscriptions approached $1 billion, Nadella said.

Sales of Windows operating-system licenses to device makers declined some 28%, with higher channel inventory levels hurting results. Research firm Gartner estimated that PC shipments declined 30%. But demand for PCs was somewhat better than management had expected, Hood said.

During the quarter Microsoft announced a new multibillion-dollar investment in OpenAI and said it would draw on the company’s artificial intelligence models for a new version of its Bing search engine and enhancements to the Microsoft 365 productivity software.

“We feel we have a good lead and we have a differentiated offering up and down the stack,” Nadella said.

Excluding the after-hours move, Microsoft shares are up 15% so far this year, while the S&P 500 index is up 6% over the same period.

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