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Microsoft Beats Estimates After Remote Work Boosts Revenue In FY20

Pritish raj by Pritish raj
May 1, 2020
in News, Tech
3 min read
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  • Microsoft Corp beat profit estimates on Wednesday, as work from home during coronavirus pandemic has boosted the revenue in Q3 of FY20

Microsoft Corp beat Wall Street sales and profit estimates on Wednesday to record boosted revenue, led by high demand for its Teams chat and online meeting software and Xbox gaming services as the world moved from home to work and play due to the novel coronavirus pandemic.

In extended trade, the company’s shares, rising over 12 percent this year, fell around 5 percent.

The results show the focus of Chief Executive Satya Nadella during his six-year tenure on cloud computing, where businesses tap into Microsoft’s computing power data centers-a growing market dominated by Amazon.com Inc’s Amazon Web Services.

For the fiscal fourth quarter, Microsoft issued forecasts for the business unit which were below analyst expectations, forecasting difficult times for LinkedIn and some sales of small business applications.

“Ultimately, in terms of GDP growth, Microsoft is not immune from what is happening globally around the world,” Nadella said at a conference call with investors.

But, when people upgraded personal computers to operate or research from home, the findings benefited from sales of their Windows operating system and Surface hardware products. Microsoft has also reported an all-time high contribution to its Xbox Live gaming service, with 90 million active monthly users.

“The biggest missed opportunity was in Surface, where demand was high, channel inventory was low, and supply chain constraints limited finished goods production,” said Patrick Moorhead, an analyst for Moor Insights & Strategy. “I think the company could easily have sold 15-20 percent more if available.”

Microsoft has benefited from strong demand for its team collaboration app, which Nadella said at a conference call now has 75 million active users every day and is competing with Zoom Video Messaging Inc. and Slack Technologies Inc. The explosion of demand overwhelmed the data centers of Microsoft, prompting it to restrict the usage of new cloud clients and prioritize users of the healthcare and government.

Microsoft Chief Financial Officer Amy Hood said in an interview that some of the increased uses of the Teams came from customers with access to the platform as part of a larger kit and first turned it on. For other cases, Hood said, Microsoft gave major customers Teams in a free trial.

“You probably won’t see sales in those cases, but clearly having better use is fantastic for us in the long run if people want to turn it into a paying seat,” Hood said. “While I’m very excited about the long-term sales opportunity, you’re not going to see it in this (fiscal third) quarter, or even in Q4. It’s all about people getting more and more involved with Microsoft products.

Demand for cloud services boosted third-quarter revenues. Azure production, however, slowed from 62 percent in the second quarter to 59 percent, which company officials said was the product of how big the business has become.

“Despite slow growth, (Azure) operates at about 10 times Google’s size (by annual revenue) and has seen greater business acceptance to date,” said Daniel Elman, an analyst at Nucleus Research.

Microsoft said revenue rose 39 percent to $13.3 billion for its “business cloud,” a mix of Azure and cloud-based software launches like Office.

The gross profit margin of the company, a key indicator of cloud profitability that Microsoft told investors it expects to boost, was 67 percent versus last year’s 63 percent.

Microsoft also said the capital investment amounted to $3.9 billion, up from $3.4 billion a year ago and less than the $4.5 billion a quarter before. However, Hood told Reuters that supply chain constraints due to the coronavirus pandemic had postponed some spending on building Azure data centers, which will possibly be higher next quarter as the business tries to catch up.

Revenue in the Intelligent Cloud market, which includes Azure, increased 27 percent to $12.28 billion, exceeding the consensus estimate of $11.87 billion by analysts according to Refinitiv’s IBES results.

Revenue in the third quarter ended March 31 rose 15 percent to $35.02 billion, exceeding expectations of $33.66 billion.

Net sales grew from $8.81 billion or $1.14 per share a year earlier to $10.75 billion, or $1.40 per share.

You can find the whole report here.

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Pritish raj

Pritish raj

Pritish Raj is a content writer at Next Big Brand. Hailing from the diversified state of Bihar, he is an engineer by education who chooses the way of poetry, photography, and writing to kick off his career. Highly enthusiastic about brands and startups, he aims to be a travel content creator.

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