The Microsoft share price slid by 1.66% in afterhours trading yesterday after the technology giant posted a strong quarterly performance but struck a cautious note on forward guidance. The company’s financial results for the quarter to the end of September came in ahead of analyst expectations thanks to a leap in demand for cloud computing services over the Covid-19 pandemic. Video gaming and computer hardware revenues also benefited, contributing to the forecast-beating revenues generated over the three months.
Despite a quarterly performance that would ordinarily be expected to have resulted investor enthusiasm rewarding the company’s share price, Microsoft actually slightly dipped in value during afterhours trading. Sentiment was dampened by conservative forward guidance that warned of a coming “headwind” in the shape of lower one-off software sales resulting from the Covid-19 pandemic.
The company also suggested that heavy investment in its cloud computing business could place some pressure on operating margin profits over the first half of next year. Sales of the high margin Windows PC operating system are also expected to fall next year.
Over the three months to September, Microsoft’s overall revenue was up 12% to $37.2 billion. That represented a 4% improvement on analyst expectations. Earnings per share also beat forecasts by 28 cents after rising 32% to $1.82 a share. Forward guidance for the present quarter is revenues coming in at between $39.6 billion and $40.4 billion. The midpoint of that range would see growth reach 8%.
Microsoft told investors that it will continue to allocate significant capital expenditure to investments in its cloud business, with demand expected to take off over coming years. Cloud services has been the company’s biggest growth area in recent years and is expected to continue to accelerate as businesses migrate legacy applications to the cloud. The Covid 19 pandemic has been an acute stimulus to companies speeding up their transition away from on-premise physical IT infrastructure.
Microsoft chief executive Satya Nadella also predicts overall spending on IT will double over the next 10 years, reaching 10% as a share of gross domestic product, from its current 5%. That’s reflected in a 31% rise in revenue from Microsoft’s commercial cloud platform to $15.2 billion. Its public cloud platform Azure saw revenues grow by a massive 47%. However, the impressive figure does still represent a slowdown in growth from 50% over the previous quarter despite also being an improvement on forecasts.
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