Microsoft gains 4% in premarket after fiscal-Q3 results

• Microsoft reported fiscal-Q3 results yesterday
• Report turned out to be better-than-expected almost all across the board
• Cloud revenue accounts for over 50% of total revenue for the 7th quarter in a row
• Guidance for fiscal-Q4 assume a slight slowdown in growth from current quarter
• Broad Azure OpenAI adoption among large companies
• Stock set to open around 3.5% below all-time highs

Microsoft (MSFT.US) released its fiscal-Q3 2024 earnings report yesterday after close of the market session. Report turned out to be much better-than-expected and triggered an over-4% share price jump in after-hours trading. Let's take a look at company's fiscal-Q3 results as well as guidance for the current quarter

Fiscal-Q3 results beat expectations

Microsoft's earnings report for fiscal-Q3 2024 (calendar Q1 2024) turned out to be better-than-expected. Company reported a beat in quarterly revenue and profits for the fifth time in a row. Revenue in each of company's three major segment was higher than expected by analysts, while total cloud revenue accounted for over 50% of total sales for the seventh quarter in a row.

Source: Bloomberg Finance LP, XTB Research

While revenue beat expectations, company reported lower than expected cost of revenue and operating expenses. Also, company reported higher-than-expected operating profit in each of three major business segments. Operating margin in Productivity & Business Processes as well as Intelligent Cloud segments improved compared to a year ago period, while margin in More Personal Computing segment ticked lower.

Source: Bloomberg Finance LP, XTB Research

Net income climbed almost 20% YoY, with company reporting a net margin of 35.5% - much better than 34% expected and over a percentage point higher than in year ago period. EPS also turned out to be much better-than-expected. Company reported a small miss in CapEx data, but a strong beat in free cash flow figures. Overall, Microsoft results in fiscal-Q3 2024 were a positive surprise almost all across the board.

Fiscal-Q3 2024 results

• Revenue: $61.86 billion vs $60.87 billion expected (+17% YoY)
  • Productivity & Business Processes: $19.57 billion vs $19.54 billion expected (+11.7% YoY)
  • Intelligent Cloud: $26.71 billion vs $26.25 billion expected (+21.0% YoY)
  • More Personal Computing: $15.58 billion vs $15.07 billion expected (+17.5% YoY)
• Total cloud revenue: $35.1 billion vs $33.93 billion expected (+23.2% YoY)
• Azure cloud growth: 31% vs 28.6% expected
• Billings: $60.66 billion vs $58.64 billion expected (14.8% YoY)
• Remaining performance obligation: $242.0 billion vs $238.4 billion expected (+20.4% YoY)
• Cost of revenue: $18.51 billion vs $18.73 billion expected (+14.7% YoY)
• Gross profit: $43.35 billion vs $42.31 billion expected (+18.0% YoY)
  • Gross margin: 70.1% vs 69.1% expected (69.5% a year ago)
• Total operating expenses: $15.77 billion vs $15.97 billion expected (+9.7% YoY)
• Operating income: $27.58 billion vs $26.22 billion expected (+23.4% YoY)
  • Productivity & Business Processes: $10.14  biliion vs $9.93 billion expected (+17.4% YoY)
  • Intelligent Cloud: $12.51 billion vs $11.71 billion expected (+32.1% YoY)
  • More Personal Computing: $4.93 billion vs $4.51 billion expected (+16.2% YoY)
• Operating margin: 44.6% vs 43.1% expected (+44.6%)
  • Productivity & Business Processes: 51.8% vs 50.8% expected (49.3% a year ago)
  • Intelligent Cloud: 46.8% vs 44.6% expected (42.9% a year ago)
  • More Personal Computing: 31.6% vs 29.9% expected (32.0% a year ago)
• Net income: $21.94 billion vs $21.06 billion expected (+19.9% YoY)
  • Net margin: 35.5% vs 34.0% expected (34.6% a year ago)
• EPS: $2.95 vs $2.86 expected ($2.46 a year ago)
• Diluted EPS: $2.94 vs $2.83 expected ($2.45 a year ago)
• Dividend per share: $0.75 vs $0.74 expected ($0.68 a year ago)
  • Payout ratio: 25.4% vs 25.0% expected (27.6% a year ago)
• Capital expenditures: $10.95 billion vs $11.28 billion expected (+65.7% YoY)
• Free cash flow: $19.63 billion vs $15.70 billion expected (+3.4% YoY)

AI drives growth, cloud remains strong

Company offered some more insight into its results and business outlook during the earnings call. A key takeaway is that performance of company's cloud and AI continues to improve. Microsoft's CEO said that Azure cloud is growing quickly and is taking market share from its rivals. Moreover, the executive said that over 65% of Fortune 500 companies are now using Azure OpenAI. CoPilot AI program is being used by almost 60% a Fortune 500 companies.

Source: Bloomberg Finance LP, XTB Research

Upbeat forecasts for fiscal-Q4 2024

While a beat in January-March 2024 results is welcome, traders were also eager to know what Microsoft expects for the coming quarter. After all, it was guidance that determined market reaction after reports from Tesla or Meta Platforms earlier this week. Microsoft guidance for fiscal-Q4 2024 (calendar April - June 2024) turned out to be quite strong. While company expects revenue growth in each of three major business segments to slow compared to fiscal-Q3 2024, it also expects Azure cloud growth to maintain its pace from fiscal-Q3. 

Fiscal-Q4 2024 forecasts

• Revenue: $63.5-64.5 billion (+13.0-14.8% YoY)
  • Productivity & Business Processes: $19.9-20.2 billion (+8.8-10.4% YoY)
  • Intelligent Cloud: $28.4-28.7 billion (+18.3-19.6% YoY)
  • More Personal Computing: $15.2-15.6 billion (+9.4-12.1% YoY)
• Operating expenses: $17.15-17.25 billion (+13.3-13.9% YoY)
• Capital expenditures: to increase 'materially'
• Azure growth: 30-31%

Dotted lines mark company's forecasts for fiscal-Q4 2024 sales (based on guidance mid-points). Source: Bloomberg Finance LP, XTB Research

Shares jump 4% in after-hours trading

Microsoft (MSFT.US) jumped over 4% in the after-hours trading, reacting to a solid fiscal-Q3 release and strong guidance for the current quarter. Taking a look at the chart at H1 interva, we can see that the current pre-market quote suggest company will open slightly above $416 per share, or at the highest level since April 17, 2024. If this is the case, the near-term resistance zone to watch will be the $420 area. Stock would also erase more than half of recent drawdown and trade around 3.5% below all-time highs ($430 area).

Source: xStation5