4 key takeaways from Microsoft’s Q3 financial results

Microsoft Corp (NASDAQ: MSFT) reported its financial results for the fiscal third quarter on Tuesday that topped analysts’ estimates by a significant margin, despite the ongoing COVID-19 disruptions.

1. Financial performance

Microsoft reported £11.12 billion of earnings in the third quarter that translates to £1.46 per share. The tech giant’s earnings in Q3 were bolstered by a net income-tax benefit worth £445.91 million. In the same quarter last year, Microsoft’s per-share earnings were capped at a lower £1.01.

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The American multinational generated £29.99 billion of revenue in the recent quarter versus the year-ago figure of £23.78 billion. According to FactSet, experts had forecast the company to post £29.52 billion of revenue and £1.28 of earnings per share. Earlier in April, Microsoft bought Nuance Communications for about £8.37 billion.

2. Revenue from individual business segments

Azure sales, Microsoft added on Tuesday, jumped 50% in the third quarter. The segment (Intelligent Cloud) at large, on the other hand, posted £10.86 billion of total revenue, compared to £8.83 billion last year and £10.74 billion expected.

Revenue from productivity and business solutions printed at £9.78 billion, beating both last year’s figure and FactSet consensus for Q3. At £9.35 billion, more personal computing revenue came in better than £7.91 billion in the comparable quarter of the previous year, and £9.03 billion expected.

3. Guidance for the fiscal fourth quarter

For the fiscal fourth quarter, analysts are calling for £30.91 billion of revenue for Microsoft. Their estimate for per-share earnings stands in Q4 stands at £1.28. In comparison, the tech giant forecasts its revenue in the fourth quarter to fall in the range of £31.35 billion to £32 billion.

4. Chief Executive Satya Nadella’s comments

In Tuesday’s announcement, CEO Satya Nadella said:

“Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning.”

In his earnings preview last week, Wedbush Securities managing director Dan Ives wrote:

“In many cases, we are seeing enterprises accelerate their digital transformation (larger deals) and cloud strategy with Microsoft by 6 to 12 months as the prospects of a semi-remote workforce for the foreseeable future looks here to stay, and Redmond hits its next stage of growth in the cloud.”

Impact on the share price

Microsoft shares were reported more than 3% down in after-hours trading on Tuesday. The stock is now exchanging hands at £182.61 per share versus £156.57 per share at the start of the year.

Commenting on why the stock price might still be under pressure, Jefferies’ Brent Thill said on CNBC’s ‘Closing Bell’:

“It looked great across the board. I think it’s just high expectations going in. They beat the top line but the magnitude of the beat, I think, didn’t meet expectations that were relatively even higher.”

At the time of writing, Microsoft is valued at £1.42 trillion and has a price to earnings ratio of 39.02.