Satya Nadella, CEO of Microsoft, arrives to federal court in Washington, D.C., on Oct. 2, 2023.
Nathan Howard | Bloomberg | Getty Images
Microsoft
shares surged by 6% in after-hours trading on Tuesday following the release of the company’s fiscal first-quarter results and revenue guidance, which exceeded expectations. Additionally, Microsoft reported a significant increase in profit due to slower operating expense growth.
Here’s a breakdown of Microsoft’s performance compared to analysts’ predictions:
- Earnings per share: $2.99 vs. $2.65 expected
- Revenue: $56.52 billion vs. $54.50 billion expected
During a conference call with analysts, Amy Hood, Microsoft’s finance chief, provided guidance for the fiscal second quarter, projecting revenue in the range of $60.4 billion to $61.4 billion, implying a growth rate of 15%. This exceeded the Refinitiv analysts’ consensus estimate of $60.9 billion.
Microsoft’s revenue grew by nearly 13% year over year, reaching $50.12 billion in the same quarter last year, according to a statement. Net income also rose by 27% to $22.29 billion compared to $17.56 billion in the same quarter a year ago.
The Intelligent Cloud segment, which includes Azure, SQL Server, Windows Server, Visual Studio, Nuance, GitHub, and enterprise services, generated $24.26 billion in revenue, surpassing the analysts’ consensus of $23.49 billion. Azure alone experienced a 29% growth in revenue, outperforming the 26% consensus.
Looking ahead to the second half of the fiscal year, Hood expects Azure growth to remain stable, with a constant currency growth rate of 26% to 27% and an increasing contribution from artificial intelligence.
CEO Satya Nadella highlighted Microsoft’s commitment to helping customers maximize the value of their digital investments through the Microsoft Cloud. He mentioned that clients are finding ways to save money on cloud spending. Additionally, Nadella mentioned that new generative AI tools powered by Microsoft-backed startup OpenAI have gained traction, with the Azure OpenAI Service now having 18,000 customers, up from 11,000 in July.
Microsoft’s Productivity and Business Processes unit, which includes Microsoft 365, LinkedIn, and Dynamics, recorded $18.59 billion in revenue, exceeding the StreetAccount consensus of $18.19 billion. The Teams communication app also experienced growth, reaching over 320 million monthly active users.
The More Personal Computing segment, featuring Windows, Xbox, Bing, and Surface, contributed $13.67 billion in revenue, a 3% increase compared to the StreetAccount consensus of $12.85 billion.
Microsoft saw a 4% growth in sales of Windows operating system licenses to device makers, ending a streak of five quarters of year-over-year declines. This improvement indicates a stabilization in the PC market.
Microsoft also achieved slower growth in research and development and sales and marketing costs, with operating expenses increasing at the rate of 1.3%, the slowest since 2016. Management forecasts a 5% growth rate for the fiscal second quarter.
In summary, Microsoft’s fiscal first-quarter results surpassed expectations, driven by strong performance in the Intelligent Cloud and Productivity and Business Processes units. Azure’s growth rate, along with the adoption of AI tools, contributed to the company’s success. Microsoft also witnessed a recovery in the PC market and demonstrated disciplined expense management. As a result, Microsoft stock has outperformed the S&P 500 index this year, experiencing a 38% increase.
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