#Earnings Results: Microsoft tops $60 billion in annual earnings for the first time to cap record-breaking year

“Our results show that when we execute well and meet customers’ needs in differentiated ways in large and growing markets, we generate growth, as we’ve seen in our commercial cloud – and in new franchises we’ve built, including gaming, security, and LinkedIn, all of which surpassed $10 billion in annual revenue over the past three years,” Chief Executive Satya Nadella said in a statement.

Analysts on average had expected earnings of $1.92 a share on sales of $44.22 billion, according to FactSet. Microsoft shares fell 3% in after-hours trading immediately following the release of the results, after falling 0.9% to $286.54 in regular trading on a tough day for tech stocks, but turned around to a small gain later in the extended session following an upbeat forecast shared in Tuesday’s conference call.

For the full year, Microsoft totaled $61.27 billion in profit on sales of $168.09 billion, both easily exceeding the records established in its previous fiscal year. The gains exceeded expectations at the beginning of the year, as Microsoft’s cloud-computing and -software offerings found needy customers in employers scrambling to move to a work-from-home setup due to the COVID-19 pandemic and expected to continue to shift to online options.

“It is abundantly clear that Microsoft is well-positioned to continue to benefit from a number of secular trends powering IT spending today, including the greater focus on digital transformation and the accelerating shift to the cloud,” Evercore ISI software analysts wrote earlier this month in a preview of the sector.

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All of Microsoft’s segments produced better growth than analysts expected in the final three months of the company’s fiscal year, which included the launch of a new Xbox and a new version of Windows. “Productivity and business processes,” which comprises most of Microsoft’s cloud-software offerings, grew to $14.69 billion in sales from $11.75 billion a year ago, topping analysts’ average expectations of $13.93 billion. “More Personal Computing,” the traditional PC business, grew to $14.09 billion from $12.91 billion, beating the average analyst forecast of $13.78 billion.

The biggest segment for Microsoft was “Intelligent Cloud,” which wraps in its Azure cloud-computing offering with sales of servers and other equipment needed for a hybrid-cloud setup. Microsoft reported record quarterly sales of $17.38 billion in that segment, up from $13.37 billion a year ago and beating the average analyst estimate of $16.39 billion. The company said that Azure sales grew by 51%, easily topping the average analyst estimate of 44.7%; unlike cloud rivals Amazon.com Inc.
AMZN,
-1.98%
and Alphabet Inc.
GOOGL,
-1.59%
GOOG,
-2.04%,
Microsoft does not break out raw numbers for its cloud-computing offering.

Analysts expect growth to continue in Microsoft’s new fiscal year, predicting ahead of the report that profit will grow to more than $63 billion and sales will increase to $186.74 billion in the 2022 fiscal year.

“As we move into FY22, we think Microsoft’s fundamentals are likely as strong at any point in recent history,” Rosenblatt Securities analyst John McPeake, who has a buy rating and $333 price target on the stock, wrote in a note ahead of the numbers. “We think Azure continues to take share, demand for PCs remains robust,
and Office, Teams, and Dynamics likely continue to grow in the double digits.”

Read: Microsoft’s shadowy presence in antitrust push is angering the rest of Big Tech

Microsoft Chief Financial Officer Amy Hood said Tuesday that Microsoft expects to keep growing. Hood forecast revenue of $43.3 billion to $44.2 billion in the fiscal first quarter, which topped analysts’ average expectations for sales of $42.5 billion and would reflect growth of at least 16.5% from the same quarter last year.

Hood expects $16.4 billion to $16.65 billion for “Intelligent Cloud”; $14.5 billion to $14.75 billion for “Productivity and business processes”; and $12.4 billion to $12.8 billion for the “More Personal Computing” segment, which will be impacted by a $300 million Windows 11 deferral to the second quarter. Those ranges beat analysts’ estimates for all but the PC segment, which was in-line due to the deferral.

While Microsoft did not provide a full-year forecast, Hood did say their outlook for fiscal 2022 “reflects healthy double-digit revenue and operating income growth” that “results in expanded operating margins.” And she also provided insight on Azure growth moving forward, which Microsoft has not done in the past.

“In constant currency, Azure revenue growth should remain relatively stable on a sequential basis,” Hood noted, suggesting that the growth of more than 50% from Azure could continue.

For investors who trust that Microsoft will continue to grow, the question is whether its stock price will follow. Microsoft has already reached a $2 trillion market cap this year thanks to 2021 growth of 28.6%, easily outpacing the 17.7% growth of the S&P 500 index
SPX,
-0.47%
and 14.8% increase of the Dow Jones Industrial Average
DJIA,
-0.24%,
which counts Microsoft as a component.

For Evercore ISI’s software analysts, the answer is clear: Just keep on posting huge growth numbers, and the stock will respond.

“The easy answer to how Microsoft continues to outperform the S&P is that Microsoft continues to deliver double-digit top AND bottom line growth,” wrote the analysts, who have an outperform rating and $300 price target on Microsoft shares.