Microsoft sales grow on cloud strength but shares fall on heightened expectations

(Reuters) -Microsoft Corp on Tuesday met analysts’ expectations for its quarterly sales and beat profit estimates, but shares fell slightly as investors looked for signs of a stronger economic recovery and stellar performance as its market value has soared.

FILE PHOTO: A Microsoft logo is seen on an office building in New York City, U.S. on July 28, 2015. REUTERS/Mike Segar

The Redmond, Washington company has become one of the world’s most valuable companies, worth close to $2 trillion, by jumping into the booming market for cloud computing. Microsoft made the transition as smartphones became more popular, eroding demand for its flagship Windows operating system for PCs.

Microsoft’s Azure cloud service is closing ground on market-share leader Amazon Web Services, and it is doubling down on productivity software used by businesses worldwide.

Revenue and adjusted earnings per share for the third quarter ended March 31 were $41.7 billion and $1.95 per share, above analysts’ estimates of $41.03 billion and $1.78 per share, according to data from Refinitiv.

Shares fell 3.4% in after-hours trading.

The stock has gained 50% over the past year as students turned to its Teams collaboration software, which competes with Slack Technologies Inc, for working from home. Businesses have sped up plans to transition software to the company’s cloud computing services.

Microsoft has continued to double down on cloud-base software and said earlier month it would buy artificial intelligence software firm Nuance Communications Inc for $16 billion, excluding net debt, to bolster its healthcare business.

Booming sales in personal computers for working from home have also helped boost the company’s Windows operating system business.

Microsoft said Azure, its closely watched cloud computing business that competes with Amazon.com Inc’s Amazon Web Services and Alphabet Inc’s Google Cloud, grew 50% in the quarter, or 46% when adjusted for currency variations. This is down from a currency-adjusted 48% the quarter before but in line with analysts’ expectations of 46.3% growth, according to data from Visible Alpha.

Overall sales at Microsoft’s “intelligent cloud” unit that contains Azure were $15.1 billion, above analysts’ estimates of $14.92 billion, according to Refinitiv data.

Sales for Microsoft’s productivity software unit, which includes its Office and Teams software, were $13.6 billion, compared with estimates of $13.49 billion, according to Refinitiv. Sales for its LinkedIn social network were up 23% on a currency adjusted basis, slightly above Visible Alpha estimates of 21.9%, as revenue continued to recover from a sharp decline in job listings and hiring at the onset of the pandemic.

Microsoft’s personal computing unit, which contains its Windows operating system and Xbox gaming console, had $13.0 billion in sales, compared with analysts’ expectations of $12.57 billion, according to Refinitiv data. Sales of Windows to PC makers were up 10%, compared to a 1% rise the quarter earlier.

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