Microsoft reports earnings beat, says A.I. will drive revenue growth

Microsoft shares rose 9% in extended trading on Tuesday after the software maker issued fiscal third-quarter results and quarterly guidance that exceeded analysts’ predictions.

Here’s how the company did:

• Earnings: $2.45 per share, vs. $2.23 per share as expected by analysts, according to Refinitiv.
• Revenue: $52.86 billion, vs. $51.02 billion as expected by analysts, according to Refinitiv.

With respect to guidance, Amy Hood, Microsoft’s finance chief, called for $54.85 billion to $55.85 billion in fiscal fourth-quarter revenue during a conference call with analysts. The middle of the range, at $55.35 billion, implies 6.7% growth, outperforming the $54.84 billion consensus among analysts surveyed by Refinitiv. Hood made optimistic comments about the potential in artificial intelligence.

“As with any significant platform shift, it starts with innovation, and we’re excited about the early feedback and demand signals from the AI capabilities we’ve announced to date,” she said. “We will continue to invest in our cloud infrastructure, particularly AI-related spend, as we scale to the growing demand driven by customer transformation. And we expect the resulting revenue to grow over time.”

Overall company revenue increased 7% year over year in the quarter ended March 31, according to a statement. Net income, at $18.30 billion, was up 9%.

Revenue in Microsoft’s Intelligent Cloud business segment, which includes the Azure public cloud, Enterprise Services, SQL Server and Windows Server, generated $22.08 billion in revenue. That’s up 16% and higher than the $21.94 billion consensus among analysts surveyed by StreetAccount.

Revenue from Azure and other cloud services grew by 27%, compared with 31% in the prior quarter. The average estimate from analysts polled by CNBC had expected 26.5% growth, while those consulted by StreetAccount were looking for 27.2%.

The Productivity and Business Process segment containing Dynamics, LinkedIn and Office, posted $17.52 billion in revenue, which was up about 11% and above the StreetAccount consensus of $17.05 billion. Microsoft said growth in revenue per user helped the company achieve 14% more revenue from commercial Office 365 productivity software subscriptions.

The Teams communication app had over 300 million monthly active users in the quarter, Microsoft CEO Satya Nadella said. That’s up from 280 million in the previous quarter.

The More Personal Computing segment, featuring Bing, Windows, Surface and Xbox, delivered $13.26 billion in revenue, down 9% but more than the $12.25 billion StreetAccount consensus. Bing now has over 100 million daily active users, and revenue from gaming subscriptions approached $1 billion, Nadella said.

Sales of Windows operating-system licenses to device makers declined some 28%, with higher channel inventory levels hurting results. Research firm Gartner estimated that PC shipments declined 30%. But demand for PCs was somewhat better than management had expected, Hood said.

During the quarter Microsoft announced a new multibillion-dollar investment in OpenAI and said it would draw on the company’s artificial intelligence models for a new version of its Bing search engine and enhancements to the Microsoft 365 productivity software.

“We feel we have a good lead and we have a differentiated offering up and down the stack,” Nadella said.

Notwithstanding the after-hours move, Microsoft shares are up 15% so far this year, while the S&P 500 index is up 6% in the same period.

WATCH: Cramer on Microsoft: ChatGPT is good for the company