Microsoft (MSFT.US) jumped over 4% yesterday after the company showed another solid earnings report. Net result reached record high with revenue climbing over 20% year-over-year. Cloud segment continued to show rapid revenue growth and higher margins. However, growth in the operating profit slowed after stellar Q2 2021. Let's take a closer look at results from Microsoft, a company that is battling Apple for a spot of biggest US company by market capitalization.
Headline results
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Open account Try demo Download mobile app Download mobile appMicrosoft, just like other Big Tech companies, got investors used to regular earnings beats. Results for calendar Q3 2021 (fiscal Q1 2022) were no exception as the company beat sales and earnings forecasts for the eleventh straight quarter. Revenue climbed 22% year-over-year, to $45.32 billion, marking the highest growth rate since 2018. Market expected sales to reach $43.97 billion. Net income was 47.6% YoY higher and reached $20.5 billion - a record high.
Revenue - sales of Windows slow
Microsoft managed to increase revenue on a year-over-year basis in all segments with the Intelligent Cloud segment achieving the highest sales growth in calendar Q3 2021 - 30.6% YoY). This segment continues to emerge as Microsoft's new top driver of sales. It accounted for slightly more than 37% of the company's total revenue - similar value as in the previous quarter. More Personal Computing - segment that includes Windows systems, gaming and advertising business - achieved the slowest rate of growth. On one hand, it can be attributed to supply issues that limited sales of new PCs and, therefore, lowered demand for operating systems. While this segment has been Microsoft's moneymaker in the past generating over 50% of sales, it accounted for less than 30% of sales in Q3 2021 - the lowest share in history. Company continues to transition into a more subscription-based business model, a common theme for many traditional tech companies.
The Intelligent Cloud segment continues to experience stellar growth with last quarter's growth exceeding 30% YoY. Source: Bloomberg, XTB
Share of the Intelligent Cloud segment in Microsoft's total revenue continues to increase. The segment accounted for more than 37% of total revenue in Q3 2021. Meanwhile, More Personal Computing segment continues to lose importance.
Profits - Growth slows in all three segments
Situation looks less rosy when it comes to operating profit. Profit growth in all three segments slowed in Q3 2021. While growth in Intelligent Cloud and Productivity and Business Processes segments slowed after an acceleration in Q2 2021, growth in More Personal Computing segment continued to slow for the second straight quarter. However, margins improved in all segments except Intelligent Cloud. Nevertheless, deterioration in margins in the cloud segment should not be worrying just yet as it remains near all-time highs. Improvement in margins in two other segments allowed total operating margin to increase during the quarter to levels not seen since calendar Q4 2009. While reports from Facebook or Alphabet show a weaker ad demand outlook, this issue does not impact Microsoft in any way. Company continues to show exceptionally growth and stellar operating performance is reflected in solid performance of company's share price
Operating profit growth slowed in all three segments. Nevertheless, even those weaker growth rates point to an improved efficiency with operating profit growth outpacing sales growth. Source: Bloomberg, XTB Research
Operating margin at the Intelligent Cloud segment deteriorated in Q3 2021 but remains at high levels. Margin in two other segment improved allowing total operating margin to jump to the highest level since Q4 2009. Source: Bloomberg, XTB
Microsoft may overtake Apple
Microsoft is one of the US mega-caps. Not only is it a member of the "trillion dollar club" but is actually the second largest US company, lagging only Apple in terms of market capitalization. However, following the latest post-earnings share price jump, the difference became very narrow. Apple has a market cap of $2.460 trillion while Microsoft is currently valued at $2.426 trillion. Microsoft has fully recovered from recent downward correction and rallied to new all-time highs this week. Uptrend on the stock is very strong and has been supported by the 100-season EMA for over a year now.
Microsoft looks to overtake Apple as the biggest US stock by market capitalization. Source: Bloomberg, XTB
Uptrend on Microsoft has been very strong. While the stock finished yesterday's trading off the daily highs, current premarket quotes point to a slightly higher opening of today's session. Source: xStation5
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