The forecast will definitely ease off growth concerns occasioned by results of the December quarter that initially dragged on Microsoft’s shares in after-hours trade but then the shares reversed course following the outlook, in effect trading 3% above the closing price.
Investors who have been wary of the previous dip rightly sought assurances that the enterprise cloud business is still on course in growth and with the current situation of things, got it from Microsoft.
Brent Thill, an analyst at investment banking firm, Jefferies lent his voice to the dip and rise when he said:
“So the quarter itself was, ho hum. Good, but not as great as we’ve seen past quarters, but then the guidance for the third quarter really turned the tape around and saved the Nasdaq, if you will.”
According to Thill, Microsoft’s guidance that its intelligent cloud segment generated revenues known as ‘Azure revenue’ would rise up sequentially is a strong indication that the cloud demand was solid.
According to financial market data provider firm, Refinitiv data, Microsoft had forecasted its Intelligent Cloud revenue of $18.75 billion-$19 billion for its fiscal third quarter, driven by “strong growth” in its Azure platform, as compared with a Wall Street consensus of $18.15 billion.
But Thill believes the strong momentum for cloud computing services Microsoft is benefiting from is likely to be reflected in upcoming results for rivals Amazon.com Inc and Alphabet Inc’s Google.
But it’s not only Azure platform that is on the spike, as Microsoft delivered strong outlooks in other areas, too. The More Computing unit for example expects revenue of $14.15 billion-$14.45 billion for the third quarter, beating Wall Street’s target of $13.88 billion, while the Productivity and Business Processes expects revenue of $15.6 billion-$15.85 billion compared with the consensus target of $15.72 billion.
The forecast also projects Full-year operating margins to have a slight increase from the previous year.
The total second quarter revenue by Microsoft though beat expectations but the Azure 36 percent revenue growth can be said to be in tandem with analyst expectations as compiled by Visible Alpha. The growth of Microsoft Intelligent Cloud segment though showed a steady drop from fiscal 2020 when growth was in the 60% range.
Microsoft has become one of the most valuable companies after the software company betted heavily on corporate software and services, especially its cloud services and the movement to the web of its Outlook email and calendar software, known as Office 365, which greatly benefited from the switch to working and learning from home during the pandemic. The demand for cloud services from Microsoft and rivals Amazon.com and Alphabet also benefited from the pandemic-fueled shift online.
Azure and cloud services, the biggest segment in Microsoft have its revenue from cloud offering rising by 26 percent, while the business that houses its Office 365 services increased 19 percent in the quarter.
A year earlier, the Net income rose to $18.77 billion, or $2.48 per share, from $15.46 billion, or $2.03 per share.
According to Refinitiv data, the company announced that its revenue rose to $51.73 billion in the three months ended Dec. 31, from $43.08 billion a year earlier, with many analysts expecting revenue of $50.88 billion.
Microsoft believes the Activision Blizzard deal would not only boost their service revenue, it would boost their Xbox content. It should be noted that growth has had a sharp decline in the fourth quarter of fiscal 2020 when Xbox content and services grew 65%, but In the past quarter, revenue rose 10%, while in the year-ago quarter it rose 40%.
While referring to the Activision deal, Brett Iversen, general manager, investor relations at Microsoft, said:
“They have a ton of great content and franchises. And that’s where that revenue would eventually come in when the deal lands, for sure.”
Ayoola Faseyi, an Abuja based Journalist with interest in Technology and Politics. He is a versatile writer with articles in many renowned News Journals. He is the Co-Founder of media brand, The Vent Republic.
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