Microsoft Shares Fall as Company’s Guidance Falls Short

Shares of tech giant Microsoft were moving lower in extended trading on Tuesday after the company reported first quarter financial results.

The company’s results were great across the board as Azure grew more than some analysts had expected. Microsoft also saw its gross margin benefit from an accounting change related to depreciation of server equipment.

For the quarter Microsoft reported earnings of $1.82 a share compared to the $1.54 a share that analysts had been expecting per Refinitiv. Revenue at $37.15 billion were also higher than the $35.72 billion that analysts expected per Refinitiv.

In the fiscal first quarter, Microsoft revenue grew 12% on an annualized basis which was down from 13% growth in the prior quarter.

Revenue for commercial PCs dropped 22% months after support for Windows 7 ended.

Azure, the company’s public cloud for hosting applications and websites, saw a staggering growth of 48%. Microsoft doesn’t disclose revenue from Azure in dollars. Analysts had expected around 44% growth.

The company’s Productivity and Business Processes segment, which includes Dynamics, LinkedIn and Office, saw $12.32 billion in revenue. That’s up 11% and higher than the $11.78 billion FactSet consensus.

Microsoft’s Intelligent Cloud segment, featuring Azure, Enterprise Services, GitHub and server products such as SQL Server and Windows Server, witnessed $12.99 billion in revenue, up 20% year over year. It was also higher than the $12.73 billion consensus among analysts polled by FactSet.

“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,” Chief Financial Officer Amy Hood stated.

“In many cases we are seeing enterprises accelerate their digital transformation and cloud strategy with Microsoft by 6 to 12 months as the prospects of a heavy remote workforce for the foreseeable future now looks in the cards with this COVID-19 backdrop,” wrote Wedbush analyst Dan Ives last week.

“While we have seen the momentum of this backdrop in the last few quarters, we believe deal flow looks strong heading into FY21 as we estimate that Microsoft is only ~35% through penetrating its unparalleled installed base on the cloud transition.”

Looking ahead, Microsoft expects $39.5 billion to $40.4 billion in fiscal second-quarter revenue. The middle of that range, at $39.95 billion, would be an 8% annualized growth. It came in below the Refinitiv consensus estimate of $40.43 billion.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.