Microsoft reported its Q4 2021 earnings on July 27, beating analysts' expectations on the continued strength of its growing cloud empire, which saw its Azure platform revenue skyrocket by 51%.
Microsoft posted revenues of $46.2 billion in the period, along with net income of $16.5 billion and earnings per share of $2.17. The company’s revenues grew by 21% compared to the year-ago quarter, while its net income expanded by a more toothsome 47% over the same time frame.
The company’s results beat expectations, which Yahoo Finance reports were revenues of $44.1 billion and earnings per share of $1.90.
Microsoft is so large a company that its top-level results are hardly clear, so let’s dig in a little more.
First up, Azure, Microsoft’s cloud computing platform, posted 51% revenue growth in the quarter compared to the corresponding year-ago quarter, a figure that would dip to 45% if one was to remove currency fluctuations, according to the company. The 51% figure, per initial analysis, is the company’s best Azure growth result since its fiscal Q3 2020 quarter, or the first calendar quarter of last year.
From that perspective, it’s hard to fault Azure’s growth over the last three months.
Microsoft's cloud business has been the key to its impressive stock performance in recent years, powering the company's market capitalization to a closing price north of $2 trillion for the first time in its history in June. And as more firms continue to focus on the cloud, Microsoft stands to benefit.
"We are seeing deal sizes continue to increase markedly as enterprise-wide digital transformation shifts are accelerating with CIOs all focused on readying their respective enterprises for a cloud driven architecture," Wedbush analyst Dan Ives wrote in a note ahead of Microsoft's earnings.
While the cloud has been a key growth driver for Microsoft in recent years, the market is far from oversaturated, even with competitors like Amazon and Google to contend with.
Picking through the rest of the company’s results, we can rank its three main divisions’ revenue growth results as follows:
- Intelligent Cloud: 30% growth, a figure driven in part by Azure’s growth.
- Productivity and Business Processes: 21% growth, led by LinkedIn (46% growth), and the Dynamics 365 CRM product (49% growth).
- More Personal Computing: 9% growth, led by search growth (53%, excluding traffic acquisition costs).
The weaker spots in the larger Redmond revenue review are not hard to spot. Office Consumer revenue expanded by 18%, a figure that feels somewhat modest; Windows OEM revenue slipped by 3%; and Surface revenue fell 20%.
But those lowlights were not enough to derail the company’s aggregate growth picture and titanic profitability. How profitable is Satya Nadella’s company? Microsoft spent $10.4 billion on share buybacks and dividends in its most recent quarter. That’s a somewhat confusing amount of money, frankly. And at this point, we’re a bit flummoxed why Microsoft is buying back shares. Its market capitalization is a bit more than $2 trillion, implying that at best the company can gently chip away at its share count over time at huge expense. Surely there is a better use for its cash?
An Optimistic Outlook
Microsoft is planning to boost the PC market with the upcoming Windows 11 in October. As for the fiscal first-quarter revenue outlook, it expects $14.5 billion to 14.75 billion from its Productivity and Business Processes segment, $16.4 billion to $16.65 billion from the Intelligent Cloud segment, both of which exceed StreetAccount estimates. The only slightly short of the StreetAccount consensus is the More Personal Computing segment which is expected to bring in $12.4 billion to $12.8 billion.
Cloud services, Office, and LinkedIn managed to offset the harmed Windows and Surface segments with impressive revenue growth. Moreover, over the past 3 years, gaming, security, and now LinkedIn, have all surpassed $10 billion in annual revenue, providing Microsoft with nothing but blue skies ahead.
Comments