Microsoft (MSFT) 1.2% down from last earnings report: Can you recover?

Microsoft (MSFT) 1.2% down from last earnings report: Can you recover?

One month has passed since the last Microsoft (MSFT) revenue report. Shares fell about 1.2% in that time frame, below the S & P 500.

Will the recent negative trends continue until the next earnings announcement, or is Microsoft planning a breakout? To better understand the key factors before jumping into the recent investor and analyst reaction. Let’s take a quick look at the latest earnings report.

Microsoft Q3 results, Azure & Teams Aid top line

Microsoft Reported that non-GAAP earnings per share for the third quarter of fiscal year 2021 were $ 1.95, 10.8% above Zack’s consensus estimate. Revenues also increased 39% year-over-year (34% increase in constant currency or CC).

Revenues were $ 41,706 million, up 19% from year-over-year levels (up 16% in real terms). In addition, the top line was 1.9% above the Zack Consensus estimate.

Strong demand trends across the industry and improved adoption of commercial cloud products drove top-line performance. Against the backdrop of the coronavirus-led wave of telecommuting, telemedicine, telemedicine, and online learning, Teams’ strong growth continues to be noteworthy.

In addition, a strong commercial business riding the wave of digital transformation has had a positive impact on revenue and revenue. Commercial bookings increased 39% year-on-year (38% increase in CC). This is due to Azure contracts and the growing momentum of Microsoft 365, in addition to consistent sales execution.

Commercial residual performance obligations were $ 117 billion, an increase of 31% year-on-year (up 32% in real terms). The commercial revenue pension mix was 94%, up 2% year-over-year due to continued migration to cloud infrastructure.

Commercial Cloud revenue was $ 17.7 billion, up 33% year-over-year (up 29% in CC).

Segment details

Productivity and business processes The segment, which includes the Office and Dynamics CRM businesses, contributed 32.5% to total revenue. Revenues were $ 13,552 million, up 15% year-over-year (up 12% in real terms).

Office commercial product and cloud service revenue grew 14% year-over-year (up 10% on a CC basis), supported by Office 365 commercial revenue growth of 22% (up 19% on a cc basis). .. The positive side can be due to strong install-based growth and increased average revenue per user (ARPU).

E5 revenue growth was driven by the strengths of advanced security, compliance and voice components.

Paid commercial seats in Office 365 grew 15% year-on-year to 300 million seats, driven by growth in services for small businesses and front-line employees.

Revenues for office consumer products and cloud services increased by 5% (up 2% in real terms), driven by growth in Microsoft 365 subscription revenue. However, weak trading in Japan was a headwind in the quarter.

Microsoft 365 Consumer subscribers totaled 50.2 million, compared to 47.5 million in the previous quarter. This figure increased 27% year-on-year due to increased demand due to the wave of telecommuting driven by the coronavirus crisis.

The Dynamics Products and Cloud Services business improved by 26% (up 22% in real terms). Dynamics 365 revenue surged 45% (40% in CC).

LinkedIn revenue was up 25% year-over-year (up 23% in real terms). The higher-than-expected performance was due to growing demand for advertising in the marketing solutions business.

Microsoft is gaining by expanding its user base for various applications such as Microsoft 365 E5 and Teams. Both solutions continue to witness the adoption of records. This rise may be due to the continued wave of telemedicine, telemedicine, telemedicine and online learning. The company states that Microsoft Teams has 145 million active users per day. Microsoft added that the number of organizations with more than 1,000 users has nearly tripled year-over-year.

In the third quarter of the fiscal year, Microsoft’s Power Platform reported revenue growth of 84% year-over-year. The platform currently has over 16 million monthly active users (MAUs), showing 97% year-over-year growth.

Integrating Teams with a variety of Microsoft internal services such as PowerPoint presentations, SharePoint, Stream, and Dynamics 365 makes collaboration easy and engaging, while at the same time achieving results and saving time, making Teams the winner.

In that quarter, Microsoft deployed Microsoft Viva to help businesses improve their employees’ experience. Microsoft Viva integrates learning, communication, and insight into an integrated experience directly within the Teams app and Microsoft 365 application suite.

The company is also witnessing great demand for Windows 10 PCs. The company added that Windows 10 has more than 1.3 billion monthly active devices.

Intelligent cloud segment, This included servers, enterprise products and services, which contributed 36.2% to total revenue. Revenue in this segment was $ 15,118 million, up 23% year-on-year (up 20% in real terms).

Revenues for server products and cloud services increased 26% year-over-year (up 23% in real terms).What was expensive AzulRevenues were up 50% year-over-year (up 46% in real terms), driven by strong growth in consumer-based businesses.

Revenues from on-premises server products increased 3% year-over-year (flat on a real basis), driven by strong annuities driven by strong demand for hybrid and premium services.

In addition, enterprise mobility install-based revenue increased 30% to more than 174 million seats.

Enterprise Services revenue increased 10% in the reported quarters (up 8% in real terms) due to growth in Microsoft Consulting Services.

Other personal computing segmentsConsists primarily of Windows, games, devices and search businesses, contributing 31.3% to total revenue. Revenue was $ 13,036 million, up 19% year-on-year (up 16% in real terms), driven by Windows OEM, search and online gaming trends.

Revenues from commercial Windows products and cloud services increased 10% year-on-year (up 7% in real terms) on the back of increased customer adoption of Microsoft 365 products and solid improvements in advanced security solutions.

Windows OEM revenue increased 10% year-over-year due to strong PC demand.

Windows OEM non-professional revenue increased 44% due to strong demand for consumer PCs driven by the wave of remote work and online learning.

However, Windows OEM Pro revenue was down 2%.

Search advertising revenue, excluding traffic acquisition costs (TAC), increased 17% (14% increase in real terms) due to the recovery of the advertising market.

Ground revenue increased 12% (7% in real terms) from year-over-year levels to $ 1.504 billion.

game Revenues increased by a whopping 50% (48% in CC) due to increased engagement driven by the wave of being at home. Revenue from Xbox hardware increased by 232% (up 223% on cc), driven by the new console.

In addition, Xbox content and service revenue was up 34% year-over-year (up 32% in real terms), driven by strong growth in first-party titles. After the completion of the ZeniMax acquisition, Microsoft’s Game Pass service now includes 20 popular ZeniMax game titles.

Business results

Non-GAAP gross margin increased 19% (16% increase in cc) to $ 28.66 billion. This can be due to increased revenue across productivity and business processes, intelligent clouds, and other personal computing segments. Non-GAAP gross margin (percentage) was 69% flat year-over-year due to changes in accounting estimates.

The commercial cloud gross margin was 70%, an increase of 300 basis points (bps) year-over-year due to changes in accounting estimates.

The operating margin increased 400 bps year-on-year to 41%.

Productivity and business process operating income was $ 6.03 billion, up 26% (up 20% in real terms). Intelligent cloud operating profit surged 41% (up 36% in real terms) to $ 6.43 billion.

More Personal Computing’s operating profit was $ 4.59 billion, up 27% (up 22% in real terms). Gross profit margin (percentage of segment profit) shrank by 200 bps year-over-year due to the shift in sales composition to games.

Balance sheet and free cash flow

As of March 31, 2021, Microsoft’s cash, cash equivalents, and short-term investments were $ 125.4 billion, compared to $ 131.97 billion as of December 31, 2020. (Part) was $ 58.06 billion, compared to $ 60.52 billion as of December 31, 2020.

Reported quarterly operating cash flow was $ 22.2 billion, compared with $ 12.5 billion in the previous quarter. Free cash flow for the quarter was $ 17.1 billion, compared with $ 8.3 billion in the previous quarter.

In the reported quarter, the company returned $ 10 billion to shareholders in the form of share buybacks and dividends.

guidance

Productivity and business process revenue for the fourth quarter of fiscal year 2021 is expected to be between $ 13.8 billion and $ 14.50 billion.

The strong upsell opportunities of Microsoft E5 and the momentum of Office 365 are expected to drive the growth of Office commercials. However, due to the customer’s move to the cloud, the on-premises business is expected to decline from the late teens.

Office consumer revenue is expected to grow in the mid-to-late teens, driven by increased revenue from Microsoft 365 subscriptions.

LinkedIn’s revenue growth is expected to be in the mid-30% range due to improved advertising and job listings. Dynamics revenue growth is expected to be at levels similar to the third quarter of fiscal year 2021, driven by the continued momentum of Dynamics 365.

Intelligent cloud revenue is projected to be between $ 16.2 billion and $ 16.45 billion. Azure revenue growth may reflect the continued strength of consumption-based services.

In addition, the benefits of adopting the Microsoft 365 suite are expected to boost business growth for each user. However, the company says it expects growth to slow to some extent given the large installation base.

However, in the enterprise services business, management expects revenue to level off on a continuous basis. The on-premises server business is projected to grow in the mid-single digits, driven by continued demand for hybrid and premium services.

Personal computing revenue is expected to grow between $ 13.6 billion and $ 14 billion. The company expects overall Windows revenue to grow in the mid-single digits. This improvement could be driven by the continued momentum seen in the growth of Windows commercial products and cloud services, as well as strong PC demand, partially offset by supply chain disruptions.

Search advertising revenue, excluding TAC, is expected to grow in the mid-40% range due to improved advertising markets.

In the fourth quarter of the fiscal year, Surface revenues are expected to decline in the mid-teens year-over-year due to difficult year-over-year conditions.

Game revenue is expected to be in the mid-to-late single digits year-over-year. Xbox content and service revenue is projected to decline in the mid-to-late single digits due to tighter year-over-year growth. Demand for the Xbox Series X and S will continue to be adversely affected by supply issues.

Management expects cost of goods sold to be between $ 13.7 billion and $ 13.9 billion and operating expenses to be between $ 13.1 billion and $ 13.2 billion.

How has the quote worked since then?

Over the past month, investors have witnessed an increasing trend in quote revisions. These changes have shifted the consensus estimate by 7.76%.

VGM score

At the moment, Microsoft’s growth score is B, but it’s a bit behind C in terms of momentum score. Following the exact same course, the stock was assigned a C grade on the value side and put it in. 20% in the middle of this investment strategy.

Overall, the total VGM score for this stock is C. If you are not focusing on one strategy, you should pay attention to this score.

Outlook

Stock quotes are on the rise and the scale of these revisions looks promising. In particular, Microsoft has Zacks rank # 3 (long press). Inline returns from inventory are expected within the next few months.

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