Microsoft CEO Satya Nadella
Tobias Schwarz | AFP | Getty Images
Microsoft shares rose as much as 5% in extended trading on Wednesday after the company reported fiscal third-quarter sales growth of 15%, fueled by its cloud business.
The company said in a statement that the coronavirus "had minimal net impact on the total company revenue" in the quarter and that "effects of COVID-19 may not be fully reflected in the financial results until future periods."
Here's how the company did:
- Earnings: $1.40 per share, adjusted
- Revenue: $35.02 billion
Analysts polled by Refinitiv had expected $1.26 in adjusted earnings per share on $33.66 billion in revenue for the quarter, which ended on March 31. Net income rose 22% to $10.8 billion.
The results, along with Alphabet's on Tuesday and Facebook's on Wednesday, show that the mega-cap tech companies have held up so far, at a time when unemployment broadly is skyrocketing and the economy is shrinking. Alphabet and Facebook both indicated that ad prices are stabilizing after a steep drop in March.
Microsoft's revenue grew 15% from $30.57 billion on an annualized basis in the quarter, according to the statement.
The More Personal Computing segment, containing Bing, Windows, Surface and Xbox, delivered $11 billion in revenue. That's up 2.9% and above the $10.46 billion consensus among analysts surveyed by FactSet.
Microsoft said in February that it didn't expect to meet the quarterly guidance it had provided for More Personal Computing. Chief Financial Officer Amy Hood had told analysts in January that the segment would generate revenue in the quarter of $10.75 billion to $11.15 billion.
The Productivity and Business Processes unit, which includes Dynamics, LinkedIn and Office, came up with $11.74 billion in revenue, up 14.7% and higher than the FactSet analyst consensus of $11.53 billion.
There were 39.6 million consumer subscribers to the Office 365 bundle of productivity apps, up about 16% from last year — the fastest growth since the third quarter of 2018. The Teams communication app now has over 75 million daily active users, up from over 44 million in mid-March, and there were over 200 million meeting participants in one day this month, CEO Satya Nadella told analysts on a conference call on Wednesday. Installed bases across the Office franchise grew in the quarter, and Microsoft picked up more revenue per user as commercial customers opted for the E5 package that includes additional security features, Hood said on the call.
Microsoft's Intelligent Cloud segment, featuring Azure, GitHub and server products, including SQL Server and Windows Server, posted $12.28 billion in revenue, up 27.2% and more than the $11.79 billion consensus.
The initial impact of Covid-19 on the business was mixed. Cloud products like Teams and Azure saw increased usage as "customers shifted to work and learn from home," Microsoft said. But on the downside, "In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in advertising spend in LinkedIn," the company said.
As Microsoft had predicted, revenue from Surface devices and Windows licenses from device makers saw gains as people rushed to work and learn from home. That was somewhat offset, though, by supply chain constraints in China that got better at the end of the quarter. Infrastructure spending, to support Azure and other offerings, was delayed in the quarter because of supply chain constraints, Microsoft said. Delays in consulting projects impacted Enterprise Services revenue, Hood said on the call.
"I don't think it came as a surprise that sales were up but 15% in the quarter is pretty significant, given the market environment," said Carter Henderson, portfolio specialist and director of institutional development at Fort Pitt Capital Group, an investment management company with offices in Florida and Pennsylvania whose largest holding is Microsoft stock. "I think it's really amazing to see all the segments of the overall business can perform in really any environment."
Henderson said the firm itself has relied on Teams in recent weeks following shelter-in-place orders across the U.S. He said he expects Azure to remain in strong demand even after people return to work and take more share from market leader Amazon Web Services.
Earlier this month IDC estimated that PC shipments fell about 10% in the quarter because of reduced supply from China, where the coronavirus had its first major outbreak. Microsoft also ended support for Windows 7 in the period.
Microsoft shares are up 12% for the year, while the S&P 500 is down almost 9%. Based on Microsoft's after-hours price, the stock is less than 4% below its record high from February.
This is breaking news. Check back for updates.
WATCH: Microsoft president on handling increased demand during coronavirus
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Microsoft's stock rises after company reports 15% sales jump and says coronavirus had 'minimal' impact on revenue - CNBC
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