The gaming boom stemming from this year’s Covid-19 lockdown — supported by a jump in working and learning from home — pushed Microsoft’s revenues well ahead of expectations in the latest quarter, according to figures issued late on Wednesday.
The strong performance, with revenue more than $1bn ahead of Wall Street’s forecasts, came despite stresses in other parts of Microsoft’s business. A cutback in technology spending by small and medium sized businesses, weakness in job advertising on LinkedIn and a sharp decline in ads on the Bing search engine all weighed on performance.
Shares in the US software company fell back about 2 per cent in after-market trading as Wall Street also digested a slowdown in growth for the Azure cloud platform, which has been core to Microsoft’s strategy in recent years. Azure’s revenue growth fell to 47 per cent, from 59 per cent in the preceding three months.
Though that was in line with most analysts’ expectations, it weighed on Microsoft’s shares, whose 32 per cent rise since the start of the year has pushed the company’s value to more than $1.6tn.
Satya Nadella, chief executive, said that this year’s crisis had added momentum to a powerful shift to cloud computing, with many companies for the first time looking at switching to digital technology in order to make their businesses more resilient. In the past, they had mainly adopted the technology to support new business projects, he added.
However, Mr Nadella added that the global economic downturn was also weighing on the company, countering the effect of the race to digitise. “The world needs to do well for us to do well in the long run,” he said. “The world will come out of this and we will be stronger if we invest in this phase.”
Amy Hood, Microsoft’s chief financial officer, said heavy spending on building capacity to handle the surge in online activity this year, along with free offers to customers who were turning to cloud services for the first time, contributed to a two percentage point drop in the company’s gross profit margin in the three months to the end of June.
Overall, Microsoft’s revenue rose 13 per cent to $38bn, with pro forma earnings per share rising 7 per cent to $1.46. Wall Street had expected revenue growth of only 9 per cent and unchanged earnings. Net income, based on formal accounting rules, fell 15 per cent from the previous year, when the figures were flattered by a large one-off item.
More Personal Computing — the name given to the company’s PC and gaming division — accounted for the biggest earnings surprise. Revenue jumped by 14 per cent to $12.9bn — almost $1.5bn more than expected — as demand for gaming took off. The company also said demand for PCs had been lifted by the mass move to working from home.
Meanwhile, the value of business bookings — an important indicator of future revenue — grew by 12 per cent. That was in line with the previous quarter, when a deceleration in bookings prompted some concern among investors that demand was weakening during the pandemic.
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