Microsoft (MSFT) earnings Q2 2020

Microsoft (MSFT) earnings Q2 2020

Microsoft stock moved 2% higher in extended trading on Wednesday after the company announced stronger-than-expected fiscal second-quarter results.

Here’s how the company did:

  • Earnings: $1.51 per share, excluding certain items, vs. $1.32 per share as expected by analysts, according to Refinitiv.
  • Revenue: $36.91 billion, vs. $35.68 billion as expected by analysts, according to Refinitiv.

On a year-over-year basis Microsoft’s revenue rose 14% in the quarter, which ended on Dec. 31, according to a statement.

Microsoft shares have been on a steady rise, jumping 63% in the past year, propelled by growth in the company’s Azure public cloud business and Office 365 productivity suite. Ahead of the second-quarter earnings report, analysts called for continuing strength at Azure, which trails Amazon Web Services in cloud infrastructure, even though growth has been slowing.

Azure growth for the quarter came in at 62%, decelerating from 76% a year ago but beating an estimate from Goldman Sachs analysts, who predicted growth of 58%. Microsoft doesn’t disclose Azure revenue in dollars.

“Our partner conversations this quarter continued to emphasize Azure’s momentum, which is enabling the company to significantly outpace the overall market’s growth,” Goldman Sachs analysts led by Heather Bellini wrote in a Monday note. “Partners commented this quarter that they have seen Azure investments continue to increase significantly, as well an effective enterprise sales force focused on driving Azure adoption and usage.”

The most high-profile win for Azure in the quarter came from the U.S. Department of Defense, which awarded the controversial Joint Enterprise Defense Infrastructure (JEDI) cloud contract to Microsoft, worth up to $10 billion over a decade. Additionally, rival Salesforce said it would tap Azure to run its Marketing Cloud service.

The Intelligent Cloud segment, which holds Azure, GitHub, server products like SQL Server and Windows Server and enterprise services, had $11.87 billion in revenue, up about 27% and more than the $11.40 billion consensus.

Microsoft’s biggest segment, More Personal Computing, containing Windows, Surface, Xbox and Bing, contributed $13.21 billion in revenue, up 1.6% year over year and above the $12.85 billion consensus among analysts surveyed by FactSet.

The Productivity and Business Processes segment, including Office, LinkedIn and Dynamics, put up $11.83 billion in revenue, up 17% and higher than the FactSet analyst consensus of $11.42 billion.

Industry analysis firm IDC said this month that fourth-quarter PC shipments grew 4.8% year over year to 71.8 million, leading to the first full year of growth since 2011. Last year IDC said that businesses were upgrading to Windows 10 before the end of support for Windows 7 this month.

Microsoft also stopped supporting the Windows Server 2008 operating system in mid-January, six months after it ended support of the SQL Server 2008 database software. Piper Sandler analysts led by Brent Bracelin, who have the equivalent of a buy rating on Microsoft stock, wrote in a note last week that those actions could “turn into potential growth headwinds this year.”

End of support for Windows Server 2008 contributed to the Intelligent Cloud growth, Microsoft said on Wednesday. And the OEM Pro category, representing revenue from Windows licenses for commercial PCs, grew 26%, up from 19% one quarter earlier and the fastest growth at least since 2014, as companies kept moving to Windows 10.

Other significant developments in the quarter included the unveiling of new Surface devices and the announced acquisition of data migration start-up Mover.

With respect to guidance, analysts polled by Refinitiv are looking for $1.24 in earnings per share, excluding certain items, on $34.14 billion in revenue in the fiscal third quarter, which would represent growth of close to 12%.

Executives will discuss the results with analysts on a conference call at 5:30 p.m. Eastern time.

This is breaking news. Please check back for updates.

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