Microsoft Corp. shares pushed toward fresh record highs Wednesday afternoon, as the death of Windows 7 and continued growth in cloud computing pushed the company to an earnings beat.
Microsoft MSFT, +1.56% reported fiscal second-quarter net income of $11.65 billion, or $1.51 a share, on sales of $36.9 billion, up from earnings of $1.08 a share on revenue of $32.47 billion a year ago. Analysts on average expected earnings of $1.32 a share on sales of $35.67 billion, according to FactSet.
Microsoft stock gained more than 2% in after-hours trading following the announcement, a gain that moved to more than 4% after the company later detailed a third-quarter forecast that also topped the consensus estimate. Shares increased 1.6% in the regular session to $168.04, yet another all-time high for a company that was worth $1.28 trillion at the bell.
Analysts and investors — who have sent Microsoft’s stock up 6.5% just since the calendar turned to 2020 — appeared to be expecting an earnings beat ahead of the numbers.
“We are expecting Nadella & Co. to post another solid beat across the board on both the top and bottom line as cloud strength on Azure and Office 365 continues to be the fuel in the tank, with strong field checks indicating the company could beat commercial cloud expectations by ~3%-4%,” Wedbush analyst Daniel Ives wrote in a preview earlier this week.
Microsoft’s rise in recent years has largely been credited to its emerging cloud-computing business, Azure, which is challenging Amazon.com Inc.’s AMZN, +0.26% dominant Amazon Web Services offering. In Wednesday’s report, Microsoft reported total cloud revenue — which includes Azure as well as server sales — of $11.9 billion, up from $9.38 billion a year ago, and said Azure grew by 62%. Analysts on average expected cloud revenue of $11.4 billion, according to FactSet.
Microsoft’s traditional personal-computer business reported revenue of $13.21 billion, up from $12.99 billion a year ago, ahead of the recent end of support for the Windows 7 operating system. Analysts on average were expecting $12.85 billion in PC revenue, according to FactSet.
Microsoft’s other segment, which focuses on software such as its eponymous Office suite, reported revenue of $11.83 billion, up from $10.1 billion a year ago. Analysts on average expected sales of $11.43 billion, according to FactSet.
In a conference call Wednesday afternoon, Chief Financial Officer Amy Hood detailed a fiscal third-quarter forecast that also beat analyst estimates. Hood’s outlook called for total revenue of $34.1 billion to $34.9 billion, while analysts on average expected fiscal third-quarter sales of $34.11 billion, according to FactSet.
Hood outlined expectations for cloud software revenue of $11.5 billion to $11.7 billion, “driven by continued double-digit growth across officer commercial, Dynamics and LinkedIn;” cloud revenue of $11.85 billion to $12.05 billion; and PC revenue of $10.75 billion to $11.15 billion, with the range reflecting “uncertainty related to the public health situation in China.”
Hood also seemed more optimistic about full-year results.
“For operating expenses, as a result of lower spend in Q1, we now expect full-year growth between 10% and 11%,” Hood said. “And finally, given our strong H1 results particularly in high-margin businesses as well as the expected sales mix for the remainder of the year, we now expect operating margins to be up roughly 2 points even as we invest with significant ambition in strategic high-growth areas in the second half of this year.”
Microsoft stock has gained 63.2% in the past 12 months, as the Dow Jones Industrial Average DJIA, +0.04% , which counts Microsoft as a component, rose 17.1% and the S&P 500 index SPX, -0.09% increased 24.1%.