Microsoft Stock: 2 Key Takeaways From Earnings Day

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On April 27, once again, $MSFT reported outstanding results.

Microsoft delivered revenues of $41.7 billion vs. consensus $40.85 billion, and adjusted EPS of $1.95 vs. consensus $1.78. The company also impressed with above-consensus guidance for fiscal fourth quarter.

However, Microsoft stock price did not react favorably. Below are two takeaways from earnings day that summarize the company’s performance and the stock’s after-hours price action.

Figure 1: Microsoft’s Q3 financial summary.

Microsoft Investor Relations

#1 All businesses remain on fire

As usual, Microsoft delivered strong results across the board, without one part of the business lifting extra weight to compensate for weakness somewhere else. Consistency has been a byproduct of Microsoft’s balanced business model across cloud, business application software, personal computing and more.

  • Productivity and Business Processes revenues of $13.6 billion was a $100 million beat to guidance. Office 365 Commercial, Dynamics 365, LinkedIn, Azure were all up at least 20% year-over-year.
  • Intelligent Cloud revenues of $15.1 billion was a $300 million beat to guidance. Azure caught my attention at first, having grown “only” 46% in ex-FX terms. This is the slowest pace of growth since I started following the sub-segment, in fiscal 2016. This may have been one source of after-hours bearishness.

Figure 2: Azure year-over-year growth, ex-FX.

DM Martins Research

  • More Personal Computing revenues of $13.0 billion was a $500 million beat to guidance. Surface up 7% ex-FX was not bad at all. Remember, from one of our previous Apple articles, that tablet sales across the industry are supposed to have dropped double digits in the first calendar quarter of 2021.

 #2 Outstanding results ≠ strength in stock

Unfortunately for Microsoft investors, delivering outstanding resultdid not mean much for share price. The stock fell as much as 4% in after-hours trading, and $MSFT failed to reach $2 trillion in market cap.

This could be the tone of earnings season for Big Tech: great results, muted market reaction, primarily driven by rich valuations. Most stocks like $TSLA, $MSFT and $AAPL have had outstanding performance in 2020 and 2019.

Apple and Amazon are next, on Wednesday and Thursday, respectively. Will the story be different with these two FAAMG tech giants? Check the Apple Maven for in-depth, real-time blog coverage of both events.

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)

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