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Microsoft Beats Revenue Expectations, Reporting 22% Growth

David Paul Morris | Bloomberg | Getty Images
  • Microsoft's Azure revenue growth slowed slightly in the quarter, although on a constant-currency basis it accelerated from the prior quarter.
  • PC supply constraints cut into sales of Windows to device makers.

Microsoft shares edged 2% higher in extended trading Tuesday after the software and hardware maker reported fiscal first-quarter earnings that exceeded analysts' estimates.

Here's how the company did:

  • Earnings: $2.27 per share, adjusted, vs. $2.07 as expected by analysts, according to Refinitiv.
  • Revenue: $45.32 billion, vs. $43.97 billion as expected by analysts, according to Refinitiv.

Total company revenue climbed almost 22% year over year, according to a statement. That's the fastest growth since 2018. Revenue grew 21% in the previous quarter.

Microsoft reported $20.5 billion in net income, growing 48%.

With respect to guidance, Microsoft called for $50.15 billion to $51.05 billion in fiscal second-quarter revenue. That works out to $50.60 billion at the middle of the range, passing the $48.92 billion consensus among analysts polled by Refinitiv.

Microsoft's Intelligent Cloud segment — which comprises the Azure public cloud, enterprise services, GitHub, SQL Server, System Center, Visual Studio and Windows Server — delivered $16.96 billion in revenue, which was up 31% year over year. That's more than the $16.51 billion consensus estimate among analysts polled by StreetAccount.

Microsoft said Azure and other cloud services grew 50% year over year in the quarter. Microsoft's Azure public cloud revenue growth was expected to be 47%, according to a CNBC survey of 12 analysts, while analysts polled by StreetAccount are looking for 48% Azure growth.

The result was more robust than Microsoft itself had predicted three months ago. Amy Hood, the company's finance chief, called for Azure growth to be relatively stable in constant currency. This time around Azure growth was 48% in constant currency, above the 45% figure in the prior quarter. Microsoft does not disclose Azure revenue in dollars.

On Tuesday Hood said that for the fiscal second quarter, "we expect healthy broad-based growth in our Azure consumption business consistent with recent trends and our user business, while continuing to benefit from Microsoft 365 momentum to see a moderation of growth rates given the size of the install base."

The Productivity and Business Processes unit, which includes Dynamics, LinkedIn and Office, contributed $15.04 billion in revenue, up 22% and over the $14.67 billion StreetAccount consensus estimate.

The company's More Personal Computing business, including Windows, devices, gaming and search advertising, posted $13.31 billion in revenue, up 12%. The number is above the $12.72 billion consensus. PC shipments grew 1% in the third quarter, according to an estimate from technology industry researcher Gartner. Still, sales of Windows to device makers rose 10%, and Microsoft said PC supply constraints impacted that business. The company saw strength in sales of commercial PCs in particular, Hood said on a conference call.

Hood called for an acceleration in Windows sales to device manufacturers in the fiscal second quarter, with a growth rate reaching the "low to mid teens."

In the quarter, Microsoft introduced new Surface PCs, said it was acquiring security start-ups CloudKnox and RiskIQ and announced plans to increase the cost of commercial Office 365 subscriptions. The company also hired Amazon cloud executive Charlie Bell to work on cybersecurity and committed to spending more on security research and development.

Microsoft shares have risen 39% in 2021, while the S&P 500 index is up about 22% over the same period.

This is breaking news. Please check back for updates.

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