Microsoft Earnings Expected to Show Another Pandemic-Fueled Quarter of Gaming, Cloud Growth

3 years ago   •   2 min read


By Aaron Tilley

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Microsoft Corp. MSFT -0.06% is expected to continue its pandemic-fueled run of strong quarterly earnings that have bolstered investor enthusiasm in the software giant, bringing the company near a $2 trillion valuation.

Microsoft has seen massive growth across its professional and consumer businesses with people stuck at home and remote work and distance education becoming the norm for many. That has driven rapid uptake of its cloud-computing services and supercharged the company’s videogaming sales. Microsoft’s stock is up around 50% over the past year, driving the company’s valuation to about $1.97 trillion, second only to Apple Inc.

Wall Street on average expects the Redmond, Wash., company to post a roughly 17% increase in its fiscal third-quarter sales to about $41 billion after the bell on Tuesday, generating net income of $13.6 billion for the January through March period, according to analysts surveyed by FactSet.

“Microsoft continues to benefit from a Covid-19-led acceleration in cloud migration and strong demand for workforce modernization,” KeyBanc Capital Markets analyst Michael Turits said in a note.

Strong demand for cloud services late last year helped Microsoft reverse a trend of a gradually declining pace of growth as the business gained scale. The company said sales linked to Azure cloud services advanced 50% in the December quarter, up from 48% in the prior three-month period. Azure, the collection of a global network of data centers and software tools Microsoft sells as a service, last year became a larger revenue source for the company than its Windows operating system, Piper Sandler analyst Brent Bracelin has said. Microsoft is No. 2 in the cloud behind Inc.

Microsoft also was able to popularize during the pandemic its Teams workplace collaboration suite that offers features competing with companies such as Zoom Video Communications Inc. and Slack Technologies Inc. Teams usage rose from 20 million active users before the pandemic in November 2019 to 115 million in October 2020, the last time the company updated its usage figures.

Microsoft has been looking for ways to underpin its efforts to reach a larger number of users through some high-profile acquisitions. Earlier this month, it acquired artificial-intelligence company Nuance Communications Inc. for $16 billion in an effort to boost its access to healthcare customers, where Nuance has a dominant position in voice-transcription software for doctors.

The company’s videogaming activity has been particularly hot during the pandemic. Xbox content and services revenue increased 40% in the December quarter with the release of two new consoles, Xbox Series X and S.

Late last year, the company bought ZeniMax Media Inc., the parent company of the popular Doom videogame franchise, for $7.5 billion. Microsoft also held acquisition talks with chat startup Discord Inc. that would have bolstered its consumer business. Those negotiations have ended, The Wall Street Journal reported last week, with Discord pursuing an initial public offering.

Microsoft Chief Executive Satya Nadella has said technology spending will continue to advance strongly after the pandemic and become an even larger part of the economy.

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