Microsoft beats earnings expectations as cloud demand rises

Microsoft's Q3 earnings beat analysts' expectations, thanks to strong growth in cloud-services demand.

The software maker's revenue rose 18 per cent year-on-year to $49.4 billion in the third quarter of fiscal 2022 (ended 31st March) - above analysts' expectations of $49 billion - while net income reached $16.7 billion.

Microsoft and other business-software firms saw their stock prices and sales skyrocket during the pandemic, as businesses around the world began to rely more on digital technologies to assist with remote working.

This reliance helped to boost demand for Microsoft's office apps, as well as it cloud-infrastructure services.

The Productivity and Business Processes segment, which includes Office software, Dynamics and LinkedIn, reported sales of $15.8 billion in the third quarter, up 17 per cent.

Office 365 now has 58.4 million consumer users, up 2 million quarter-on-quarter and 8 million year-on-year.

Microsoft hiked the pricing of several Office 365 software subscriptions in fiscal Q1'22, with a knock-on effect on revenues. Dynamics revenue rose 22 per cent, while Office's commercial version saw a 12 per cent growth in revenue. LinkedIn was up 34 per cent.

Microsoft's Intelligent Cloud segment produced $19.1 billion in sales, up 26 per cent. This segment includes Microsoft's Azure public cloud for application hosting, as well as Windows Server, SQL Server, and enterprise services.

The Azure division, which governs cloud infrastructure, grew 46 per cent YoY.

The More Personal Computing Segment, which comprises the Windows, search advertising, Xbox and Surface lines, generated $14.5 billion, up 11 per cent YoY.

Xbox hardware sales were up 14 per cent, while Xbox content and services income climbed four per cent, thanks to growth in Xbox Game Pass subscriptions and first-party titles.

Surface devices also appear to be performing well, with a 13 per cent revenue gain - higher than last quarter's eight per cent increase.

Microsoft returned $12.4 billion to shareholders (up 25 per cent YoY) in the form of share repurchases and dividends in Q3'22.

The company is also in the process of acquiring video game publisher Activision Blizzard, the largest deal in Microsoft's 47-year history, for $68.7 billion. This follows Microsoft's acquisition of Nuance Communications, and plans to expand in the healthcare market.

Microsoft expects more revenue growth next quarter, albeit single-digit in certain areas.

"Going forward, digital technology will be the key input that powers the world's economic output," said Satya Nadella, chairman and chief executive officer of Microsoft.

"Across the tech stack, we are expanding our opportunity and taking share as we help customers differentiate, build resilience, and do more with less."

Microsoft chief financial officer Amy Hood said the situation in Ukraine is anticipated to cost the business roughly $110 million in sales in the coming quarter.

Because of reduced engagement hours year-on-year, as well as constrained console availability, gaming revenue could also drop.