Microsoft earnings meet Wall Street expectations, and the stock sinks almost 2%

Justin Sullivan/Getty ImagesMicrosoft CEO Satya Nadella.
  • Microsoft reported earnings for the holiday quarter of 2018 and came in just about exactly at Wall Street expectations on revenue.
  • Notably, Microsoft just barely missed expectations on earnings per share – but Microsoft said it’s because of a one-time charge involving the new tax laws, and it would have beaten the estimates otherwise.
  • Overall, Microsoft showed strong growth in all three of its business units, with Microsoft Azure, Office 365, and the Surface hardware line as standouts.
  • Microsoft stock is down about 2% in after-hours trading at the time of writing.

Microsoft reported results for its holiday quarter on Wednesday after the bell – and posted earnings that fell short of Wall Street expectations, though it showed stronger-than-expected cloud revenue.

Microsoft stock is down about 2% in after-hours trading at the time of writing. Microsoft came into this earnings season from a position of strength: Microsoft holds the title of most valuable company, with Amazon in a very close second.

Specifically, Microsoft reported:

  • Earnings of $US1.08 a share, versus Wall Street estimates of $US1.09.
  • Revenues of $US32.5 billion, exactly in line with analyst consensus.
  • Intelligent-cloud revenue of $US9.38 billion, above analyst estimates of $US9.27 billion.

Importantly, Microsoft would have actually beaten Wall Street estimates on earnings per share by $US0.01, but the company took a one-time charge related to new tax legislation in the United States. Other than that, Microsoft delivered growth across all three of its major business units – and showed that its cloud is still strong.

Revenue from the intelligent-cloud business unit, which encompasses the Microsoft Azure cloud and other related products, was up 20% from the period a year ago, notching up $US9.4 billion. The Microsoft Azure cloud, in particular, saw 76% revenue growth from the period a year ago, though the company doesn’t share specific figures.

However, that revenue growth figure for the Microsoft Azure business is flat from the previous quarter, giving one possible reason why the stock price has sunk after hours; Wall Street wants Microsoft to show more dramatic growth in Azure, as it challenges the market-leading Amazon Web Services.

Similarly, the productivity-and-business-processes segment of its business was up 13% from the period a year ago, to $US10.1 billion. That unit encompasses the Microsoft Office 365 cloud suite for businesses, which saw revenue growth of 34% from the same timeframe. Revenue from LinkedIn was up 29% from the period a year ago, as well.

Finally, the more-personal-computing segment, which includes Windows, showed signs of life. Revenue in this unit was up 7% from the quarter a year ago, to 13%. Revenue from licensing Windows to PC manufacturers was down 5%, Microsoft said, thanks to a weakening PC market and chip shortages from companies like Intel limiting the availability of new machines.

However, Microsoft’s Surface line of PC and tablet hardware had a very happy holiday indeed, with 39% growth from the same period in 2017. The gaming division saw 8% growth in the same timeframe, with revenue from Xbox subscriptions and services, including the Xbox Live subscription service, up 31%.

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