Productivity Is Paying Off For Microsoft

On Tuesday, Microsoft Corporation MSFT reported fiscal first-quarter earnings that exceeded analysts' estimates as well as its predictions it made three months ago.

Quarter Figures

Net income grew 48% and amounted to $20.5 billion, resulting in adjusted earnings of $2.27 per share, exceeding the $2.07 that analysts expected.

Total company revenue rose almost 22% YoY as it amounted to $45.32 billion, smashing analyst expectations of $43.97 billion, according to Refinitiv.  This is the fastest growth rate since 2018 after the previous quarter delivered 21% growth.

Performance by Segments

The Intelligent Cloud segment that houses Azure public cloud and enterprise services, among others, brought in $16.96 billion to the revenue table, growing 31% YoY. Azure and other cloud services alone grew 50% YoY, whereas CNBC survey of 12 analysts expected Microsoft's Azure public cloud revenue growth to be 47% and analysts polled by StreetAccount were expecting 48%.

The Productivity and Business Processes unit, which is home to LinkedIn and Office, generated $15.04 billion in revenue and grew 22%, also exceeding StreetAccount consensus estimate of $14.67 billion.

More Personal Computing business, which includes Windows, devices, gaming, and search advertising, grew 12% and brought in a revenue of $13.31 billion, also above the $12.72 billion consensuses. According to an estimate from an industry researcher Gartner Inc IT PC shipments grew 1% during this quarter and Microsoft saw strength in sales of commercial PCs in particular. Sales of Windows to device makers rose 10%, with Microsoft acknowledging that the business was impacted by PC supply constraints.

Quarter News

During the quarter, Microsoft unveiled four new Surface computers and announced it will be acquiring security start-ups CloudKnox and RiskIQ. It also announced it will be increasing prices of commercial Office 365 subscriptions as of March next year. It also got an Amazon Inc AMZN cloud executive Charlie Bell on board to work on cybersecurity, as well as committed to spending more funds on research in this area.

A Focus on Productivity

As more companies move to hybrid and remote workforces, productivity is becoming an increasingly important part of Microsoft's offerings.

At the beginning of October, it announced it acquired a productivity software startup Ally.io, The start-up's dashboards and customizable tools to help employees see if they're meeting their goals which are of great importance in the undergoing era of remote work. This software is supposed to ‘work' well with Viva to help teams align better and enhance business outcomes.

Viva was introduced this year as part of Teams to provide users with learning materials, corporate documents, and even suggestions on how to improve their productivity.

Ally.io's software specializes in an approach that involves identifying goals and using specific measures to evaluate progress. Alphabet Inc GOOG-Google is among companies that have embraced this model of objectives and key results. The concept is everything but new as former Intel Corporation INTC CEO Andy Grove described it in his book "High Output Management" back in 1983.

Quarter Guidance

Microsoft is expecting fiscal second-quarter revenue to be in the range between $50.15 billion and $51.05 billion which exceeds the Refinitiv study consensus of $48.92 billion. Microsoft's Microsoft's finance chef Amy Hood is expecting an acceleration in Windows sales to device manufacturers with a growth rate reaching the "low to mid-teens."

After better-than-expected results, and accounting for recent trends, Hood is expecting a healthy broad-based growth in Azure consumption business. Given the size of the install base, the software and hardware maker expects to continue to benefit from Microsoft 365 momentum with moderation of growth rates.

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