Microsoft stock turns green after strong sales forecast, reversing a post-earnings decline

Microsoft Corp sales topped $50 billion for the first time in the holiday quarter of 2021, and a stock slump turned around in late trading Tuesday after the software giant forecast stronger revenue in the current quarter than analysts had expected.

Microsoft MSFT,
-2.66%
It reported fiscal second-quarter earnings of $18.8 billion, or $2.48 a share, up from $2.03 a share a year ago, and revenue jumped to $51.73 billion from $43.08 billion a year ago. Analysts expected average earnings of $2.32 per share from sales of $50.71 billion, according to FactSet.

Shares fell more than 5% in after-hours trading after the results were released, but returned to a 1.2% gain after Chief Financial Officer Amy Hood shared Microsoft’s outlook on a conference call Tuesday afternoon. Hood said Microsoft expects third-quarter fiscal revenue of $48.5 billion to $49.3 billion, topping the average analyst forecast of $48.11 billion, according to FactSet, and providing segment guidance that meets or exceeds average analyst expectations.

Microsoft’s earnings arrived just over a week after the software giant announced plans for its largest-ever tech acquisition, a $69 billion bid for video game maker Activision Blizzard Inc. ATVI,
-1.06%.
It will add Activision to the company’s Personal Computing division, which includes the company’s Xbox division in addition to the traditional PC business, and established a quarterly sales record at $17. $47 billion, up from $15.12 billion in the previous quarter. Analysts expected average revenue of $16.62 billion, according to FactSet.

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While Microsoft is largely known to consumers for its Windows and Xbox operating systems, investors have focused more on the company’s cloud business in recent years. Microsoft reported record revenue of $18.33 billion in the “smart cloud” segment, up from $14.6 billion a year ago and exceeding the average analyst estimate of $18.31 billion, according to FactSet.

Microsoft reported that sales of its core cloud computing platform, Azure, grew 46%; Microsoft doesn’t report Azure revenue, even like Amazon.com Inc. AMZN,
-3.15%
and Google GOOGL of Alphabet Inc. ,
-2.96%
GOOG,
-2.79%
Regularly disclose total revenue and operating profit of competing cloud services. Analysts, on average, expected Azure to grow 45.3%, according to FactSet.

In a note released following the report, Wedbush analyst Daniel Ives suggested that Wall Street expects stronger performance from Azure.

“The stock is selling after market as Azure growth came in at 46% and outperformed Street at 45% but was below some bullish whisper numbers at 48%,” Ives wrote.

Hood may have been able to satiate those investors on the conference call, however, by calling for faster growth in the current quarter.

“At Azure, we expect revenue growth to rise sequentially prior quarter in constant currency driven by our Azure consumer business with strong growth on a large base,” Microsoft’s CFO said while presenting its third-quarter outlook. $18.75 billion to $19 billion, which is completely above the average analyst estimate.

The smart cloud segment is expected to receive a boost from Microsoft’s acquisition of another big money acquisition, Nuance Communications Inc. NUAN,
-0.47%And
But that deal was not closed before the end of the quarter, executives previously said, amid a review by the UK’s Competition and Markets Authority. Hood said on the call that the deal should close this quarter.

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Microsoft’s other revenue segment, Productivity and Business Solutions, reported revenue of $15.94 billion, also a quarterly record. A segment that includes cloud software assets like Office as well as LinkedIn’s professional networking property grew from $13.53 billion a year ago and outperformed the average analyst estimate of $15.88 billion.

Microsoft shares closed 2.7% lower Tuesday at $288.49 as markets struggled with another choppy trading day. Stocks gained 25.7% in the past year, like the Dow Jones Industrial Average DJIA,
-0.19%And
Which Microsoft considers as a component, added 11%.

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