Microsoft Stock Hits All-Time High After Crushing Earnings

Microsoft stock

Author: Tim Phillips

October 28, 2021

Share this

The earnings machine continues to roll on in global stock markets as a slew of big companies report their third-quarter numbers.

This week has been a busy one so far with all the traditional “Big Tech” names in the US reporting results.

One of the biggest companies in the world by market cap, Microsoft Corporation (NASDAQ: MSFT), revealed its own first-quarter fiscal year (FY) 2022 earnings on Tuesday (26 October).

For investors in the office productivity software, cloud, and gaming giant, the numbers did not disappoint.

In fact, Microsoft’s stock reacted positively to the blowout quarter and promptly rose by over 4% to close at an all-time high of around US$323.

Azure cloud is a beast

Microsoft managed to post revenue of US$45.3 billion for the three months ended 30 September, up a whopping 22% year-on-year.

On the profit side, the story was even better with GAAP net profit hitting US$20.5 billion, up 48% year-on-year (with a net income tax benefit explaining US$3.3 billion of that gain).

The operating level looked just as impressive, with operating income hitting US$20.2 billion, up 27% year-on-year.

Given all the publicity around Amazon.com Inc’s (NASDAQ: AMZN) cloud computing division – Amazon Web Services (AWS) – you’d think it’s the only cloud business in town growing like gangbusters.

Yet Microsoft’s Azure cloud service is racking up some impressive growth. The number two cloud provider globally, Azure saw revenue growth of 50% year-on-year.

However, this was just the leading light of a broader business that is firing on all cylinders (see below).

Azure is part of Microsoft’s Intelligent Cloud division which itself posted revenue of US$17 billion for the quarter, up 31% year-on-year.

Microsoft business growth

Source: Company reports, CNBC.com

Multiple business lines

Given the overall strength of Microsoft’s business, it’s worth noting that all three divisions – Productivity & Business Processes, Intelligent Cloud and More Personal Computing – all expanded revenue by more than 10% year-on-year.

In fact, Productivity and Business Processes, which includes its Office 365 subscription suite, saw 22% year-on-year growth to US$15.0 billion.

Meanwhile, More Personal Computing (with its Xboxes and Surface Pros) was the laggard with “only” 12% year-on-year growth to US$13.3 billion.

Perhaps the only negative during the quarter was the sluggish growth of Xbox content and services revenue, which was only up 2% year-on-year.

However, that could be put down to supply-chain constraints as companies head into the holiday quarter.

Growth machine

While Microsoft is already a US$2.4 trillion company, the growth potential left in its tank suggests that it’s operating like a young, high-growth tech firm.

With a robust business, management also raised guidance for the current quarter to US$51.05 billion at the high end – above consensus expectations among analysts.

A year-to-date share price gain of 48% for Microsoft, versus the S&P 500’s 23%, seems to suggest that investors are realising that this tech giant can defy the law of large numbers, and will continue to get bigger.

 

Disclaimer: ProsperUs Head of Content & Investment Lead 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.