Microsoft revenue soars amid coronavirus pandemic, exceeding the predictions of analysts for the latest quarter.
The rise in Microsoft revenue is caused by the demand for its cloud and remote collaboration tools.
Microsoft (MSFT) posted $38 billion in revenue for the three months ended in June. This is a 13% increase from the same period in the prior year and higher than the $36.5 billion that Wall Street analysts had predicted.
The quarter's earnings were $1.46 per share, defeating analysts' forecast of $1.34 share."The last five months have made it clear that tech intensity is the key to business resilience," CEO Satya Nadella said in a release. "Organizations that build their own digital capability will recover faster and emerge from this crisis stronger."
The coronavirus pandemic forced many people to work from home, and this has propelled the demand for Microsoft's "intelligent cloud," "more personal computing" and "productivity and business processes" divisions.
There was also a 6% increase in revenue from the productivity and business processes segment. Thanks to a 19% rise in sales of Office 365 Commercial. Revenue in the intelligent cloud division surged by 17% to $13.4 billion, while personal computing sales rose by 14% to $12.9 billion.
Still, Microsoft's stock dropped more than 2.5% in after-hours trading shortly after the results were posted, after capping the day with 1.4%.
Investors may be concerned about slowing growth in its crucial Azure cloud business, which competes with market leader Amazon Web Services. Azure sales grew 47% during the second quarter, a slowdown from the 59% year-over-year growth it reported during the previous quarter.
However, analysts could see headwinds for Microsoft. The IT spending of Microsoft in the short term may further be reduced due to the second wave of shutdowns across the country and the recession.
According to Microsoft Inc., business license purchasing faced a slowdown in the second quarter, especially by small and medium businesses experiencing the economic fallout of the Covid-19 outbreak. Its search business was also affected by a pullback in ad spending.
Digital capabilities
Meanwhile, businesses that would upgrade their digital capabilities may get better incentives as more people rely on working remotely.
Microsoft's operating expenses rose by 13% during the quarter. It covers a $450 million charge associated with the plan the company announced last month to shut down all 83 of its brick-and-mortar retail stores.
Operating expenses in the productivity and business processes segment rose by 10%, "driven by Teams marketing and investments in cloud engineering."
"Right now, what I would like us to focus on, in the interest of our long-term investors, is to say: How can we build this modern tech stack so that it can really ... help customers transform, be resilient, and help us to get into new categories and build a strong position in those categories," Nadella told analysts Wednesday.
He added: "My own approach to this would be not to worry as much about short term, whether it's the growth number ... nor are we trying to think about a margin target, because in some sense, the world needs to do well for us to do well in the long run. And I think the world will come out of this, and we will be stronger if we invest during this (time)."
