Microsoft Beats Q2 Earnings Estimates, Offers Cautious Revenue Outlook

Microsoft’s shares experienced a slight dip of up to 2% in extended trading following the release of its fiscal second-quarter results. While the software giant outperformed analysts’ estimates for the quarter ended December 31, 2023, its cautious revenue outlook for the fiscal third quarter contributed to the after-hours dip. Here’s a breakdown of Microsoft’s performance compared to the consensus among analysts polled by LSEG:

• Earnings: $2.93 per share vs. $2.78 per share expected
• Revenue: $62.02 billion vs. $61.12 billion expected

Microsoft reported a 17.6% year-over-year increase in revenue, reaching $21.87 billion in net income, or $2.93 per share, up from $16.43 billion or $2.20 per share in the previous year. The Intelligent Cloud segment generated $25.88 billion in revenue, a 20% increase, surpassing the $25.29 billion consensus.

Within the Intelligent Cloud segment, revenue from Azure and other cloud services saw a 30% growth, exceeding expectations. Microsoft now boasts 53,000 Azure AI customers, with one-third of them being new additions in the past year. CEO Satya Nadella emphasized the increased commitments to spend over $1 billion on Azure, signalling strong customer confidence in the platform.

The Productivity and Business Processes unit, encompassing Office productivity software, LinkedIn, and Dynamics, delivered $19.25 billion in revenue, a 13% rise and beating the $18.99 billion consensus. The More Personal Computing segment contributed $16.89 billion in revenue, marking a 19% increase and slightly surpassing the $16.79 billion consensus. This segment includes Windows, Surface, Bing, and Xbox.

Microsoft’s acquisition of video game publisher Activision Blizzard, its largest deal ever, was completed during the fiscal second quarter. The company also introduced custom cloud chips and launched the $30 monthly Copilot AI add-on to Microsoft 365 bundles. However, Microsoft executives did not disclose specific details about the adoption or revenue growth related to the Copilot service.

While Microsoft shares experienced a dip in after-hours trading, the overall performance in 2024 has seen a 9% increase, outpacing the S&P 500 index’s 3% gain over the same period. CEO Satya Nadella expressed optimism about Microsoft 365 Copilot’s adoption and revenue potential, while acknowledging ongoing layoffs within the company, including around 700 job cuts at LinkedIn and 1,900 employees in the gaming unit following the Activision deal.