Big Tech Earnings: Apple and Microsoft Smash Expectations

Apple Microsoft earnings

Author: Tim Phillips

July 29, 2021

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The past week has been a busy one for investors as a slew of large technology companies in the US have been reporting their latest quarterly earnings.

As ever, many eyes are focused on the biggest companies and how resilient their numbers are given the US economy is starting to reopen.

The top two most valuable firms in the world – Apple Inc (NASDAQ: AAPL) and Microsoft Corporation (NASDAQ: MSFT) – which are both worth over US$2 trillion, reported some stellar numbers.

With that, here’s what long-term investors should know about these two giants’ latest financials and what the share price reactions tell us.

Cash-generating beast

Apple had another unbelievable set of figures for its third quarter fiscal 2021 period (for the three months ending 26 June 2021).

Revenue for the iPhone giant was up an impressive 36% year-on-year to US$81.4 billion – crushing analyst consensus expectations that were calling for around US$73 billion in sales.

Meanwhile diluted earnings per share (EPS) was US$1.30, easily surpassing the projected US$1.0 from analysts.

The Americas region continued to show strong growth with net sales for the region up by 33% year-on-year. It continues to be the leading contributor to sales, generating over two-fifths of Apple’s overall revenue.

Meanwhile, Greater China saw a nice 58% year-on-year rise in revenue to US$14.7 billion as the easy comparison to last year’s quarter (when China was in lockdown) bolstered the percentage increase.

Apple returned nearly US$29 billion to shareholders during the period in the form of buybacks and dividends, highlighting the massive financial firepower and cash-generating abilities that the firm continues to possess.

But what about the current quarter’s guidance? Although management said it expects double-digit year-on-year growth in the quarter we’re in, detailed guidance wasn’t forthcoming.

Shares in Apple fell slightly yesterday (on news that ongoing chip shortages are going to be an issue for production of its Macs) but are still up 12% so far in 2021.

Firing on all three cylinders

Meanwhile, Microsoft came into its earnings release with high expectations and a share price that had reached an all-time high last week.

Microsoft’s numbers didn’t disappoint. For a company that has three solid, distinct, and fast-growing businesses, what a lot of investors now watch is how well its cloud unit – Azure – performs.

Overall, revenue for Microsoft in its fiscal fourth quarter (ending 30 June 2021) hit US$46.2 billion, up 21% year-on-year.

Its EPS was US$2.17 and easily beat projections for US$1.90. All three business units were nearly evenly split in terms of their revenue contribution during the quarter.

Producitivty and Business Processes, which includes Office365, saw revenue of US$14.7 billion – an increase of 25% year-on-year. Meanwhile, its Intelligent Cloud division, that includes Azure, brought in US$17.4 billion in revenue, up 30% year-on-year.

Although Microsoft doesn’t break out Azure’s dollar revenue amount, it did grow at 50% year-on-year during the quarter.

Finally, revenue from the More Personal Computing segment, which includes the likes of Xbox and its Surface tablets, saw revenue of US$14.1 billion, registering the slowest growth of all three with a 9% year-on-year increase.

Perhaps one of the best numbers to focus on was how much revenue LinkedIn brought to Microsoft. Bought back in 2016 for US$26.2 billion, LinkedIn registered 12-month trailing revenue of over US$10 billion for the first time.

That puts it as one of the businesses within Microsoft that brings in US$10 billion annually, with security and gaming also hitting that landmark number during the past quarter.

Big with profits to match

Both Apple and Microsoft are continuing to grow their profits and market caps. For companies of their size, to still grow revenue in double-digit percentages is quite a feat.

For long-term investors who want to own the “cream of the crop” blue-chip global technology names, the latest earnings from Apple and Microsoft haven’t dented either of their investment cases.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Microsoft Corporation.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.