Microsoft Tops Q3 Profit and Business Sales Estimates

By Avi Ben Ezra Wednesday, April 28, 2021

Tech company Microsoft reported Q3 profit and quarterly revenue that beat analysts’ estimates.

Microsoft Italian headquarters.

Strong Cloud Growth Confirmed

The company reported adjusted earnings per share of $1.95, compared to consensus estimates of $1.78 per share. Business sales came in at $41.71 billion, which is again higher than the expected $41.03 billion, according to the data provided by Refinitiv.

On an annual basis, Microsoft saw its revenue soar by 19% in its fiscal Q3 that ended March 31, marking the best quarterly increase for the company since 2018. A surge in business sales was partly fueled by increased PC sales amid the COVID-19 pandemic.

“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning,” said Satya Nadella, CEO of Microsoft. “We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform.”

Microsoft’s cloud business, Azure, recorded a 50% growth year-over-year (YOY), compared to analysts’ expectations of 46%. The Intelligent Cloud business unit garnered $15.12 billion in revenue in Q3, up 23% on a YOY basis and stronger than the estimated $14.92 billion. Azure, Windows Server, SQL Server, Visual Studio, GitHub, and Enterprise Services are all part of the Intelligent Cloud business.

The Productivity and Business Processes business unit, which includes Office, Dynamics, and LinkedIn, delivered revenue of $13.55 billion, up 15% YOY and beating the estimated $13.49 billion. Business communication platform Teams registered 145 million daily active users, compared to 115 million in October.

The tech company noted strong performance recorded by LinkedIn, which accumulated $3 billion in revenue in the past 12 months, according to Satya Nadella, CEO of Microsoft. The Personal Computing division, containing Windows, gaming, devices, and search, reported $13.04 billion in revenue, up 19% compared to last year and beating the $12.55 billion consensus.

Amy Hood, CFO of the company, said Microsoft expects $43.6 billion to $44.5 billion in revenue in fiscal Q4. The middle of that range translates to about 16% growth, still better than consensus estimates of $42.98.

Sales of Windows licenses also surged 10% and there are currently more than 1.3 billion devices using Windows 10 OS on a monthly basis, said Nadella, despite the fact Hood predicted Windows license revenue from PC makers to be up in low single digits in January. She said that the PC market survived the “significant ongoing constraints in the supply chain.”

Microsoft’s operating margin dropped as the company shifted more of its operations to the cloud. The company also reported that the gross margin for its Commercial Cloud series of products — which contain Azure, subscriptions to the Office 365, Dynamic 365 enterprise apps, and the commercial segment of LinkedIn — slipped to 70% from 71%.

This was likely welcomed by investors who believe Azure can continue to be profitable. The operating margin for the Intelligent Cloud also dropped to 42.5% from roughly 44.5%, while the company’s overall operating margin fell to 40.9% from 41.6%.

Shares of Microsoft fell almost 2.5% in extended trading Tuesday but are still up 18% since the start of 2021.

Summary

Microsoft reported better-than-expected profit and revenue for its fiscal Q3, as well as revenue guidance for the Q4 that also topped the market estimates.

About the Author


Headshot of Avi Ben Ezra

Avi Ben Ezra is the CTO and Co-founder of SnatchBot and SnatchApp (Snatch Group Limited). He leads the Group’s long-term technology vision and is responsible for running all facets of the tech business which includes being the architect of the platforms and UI interfaces.

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