Microsoft today reported earnings for its first fiscal quarter of 2021, including revenue up 12% to $37.2 billion, net income of $13.9 billion, and earnings per share of $1.82 (compared to revenue of $33.1 billion, net income of $10.7 billion, and earnings per share of $1.14 in Q1 2020). All three of the company’s operating groups saw year-over-year growth.
Analysts had expected Microsoft to earn $35.7 billion in revenue and report earnings per share of $1.54. The company thus easily beat expectations, suggesting some (but not all) units are benefiting from the effects of the pandemic. The company’s stock was up 1.5% in regular trading and up another 1% in after-hours trading. Microsoft returned $9.5 billion to shareholders in the form of share repurchases and dividends during the quarter.
COVID-19 impact on the quarter
Microsoft is the first of the tech giants to report results for a second full quarter during the coronavirus pandemic. In the past two quarters, Microsoft said COVID-19 had minimal net impact on the total company revenue. This time, Microsoft merely said its “focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them do their best work while remote.” Indeed, Microsoft CEO Satya Nadella was eager to talk about “digital transformation” and didn’t even mention the virus.
“The next decade of economic performance for every business will be defined by the speed of their digital transformation,” Nadella said in a statement. “We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs.”
A 48% revenue increase for Azure is good news for the company. Azure growth has been falling steadily: 76% in Q2 2019, 73% in Q3 2019, 64% in Q4 2019, and 59% in Q1 2020. It rebounded slightly to 62% in Q2 2020, but returned to 59% in Q3 2020, and then fell to 47% in Q4 2020. Slowing growth is normal at Azure size, and while the pandemic accelerated the trend, it appears to have settled.
“Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2 billion, up 31% year over year,” Microsoft CFO Amy Hood said in a statement. More cloud usage but slower revenue growth means signing on new customers isn’t so easy during the pandemic. It may also suggest Microsoft is delaying or waiving bills and fees for Azure customers in hopes of keeping them in the long run. Microsoft does not break out exact Azure revenue numbers, likely to avoid comparisons with industry leader AWS.
Operating group highlights
Here are the highlights across Microsoft’s three operating groups:
- Productivity and Business Processes: Up 11% to $12.3 billion. Office commercial revenue grew 9%, Office consumer and cloud revenue was up 13%, and Dynamics revenue increased 19%. LinkedIn revenue increased 16%, and Office 365 consumer subscribers hit 45.3 million.
- Intelligent Cloud: Up 20% to $13.0 billion. Server products and cloud services revenue grew 22% while Azure revenue was up 48%.
- More Personal Computing: Up 6% to $11.8 billion. Windows OEM revenue was down 5% while Windows commercial revenue increased 13%. Search advertising revenue minus traffic acquisition costs fell 10%. Surface revenue increased 37%, and Xbox content and services revenue increased 30%.
More to follow
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