Microsoft reported $35 billion in revenue, an increase of 15% from a year ago, as increased demand for its productivity, gaming and cloud technologies overcame the COVID-19 pandemic’s impact on its Windows PC and advertising businesses.
The company posted profits of $10.8 billion, up 22%, translating into earnings per share of $1.43, topping Wall Street expectations by 17 cents.
In a news release, the company said COVID-19 had “minimal net impact” on its revenue for the quarter, detailing the ways in which the changing economy and work environment has played out across its different business segments:
In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage increased, particularly in Microsoft 365 including Teams, Azure, Windows Virtual Desktop, advanced security solutions, and Power Platform, as customers shifted to work and learn from home. In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in advertising spend in LinkedIn.
In the More Personal Computing segment, Windows OEM and Surface benefited from increased demand to support remote work and learn scenarios, offset in part by supply chain constraints in China that improved late in the quarter. Gaming benefited from increased engagement following stay-at-home guidelines. Search was negatively impacted by reductions in advertising spend, particularly in the industries most impacted by COVID-19. The effects of COVID-19 may not be fully reflected in the financial results until future periods.
“We’ve seen two years’ worth of digital transformation in two months,” Microsoft CEO Satya Nadella said in the company’s earnings news release, adding that the company’s “durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”
Microsoft’s Intelligent Cloud division posted $12.3 billion in revenue, up 27%, the biggest growth among the company’s three major divisions for the quarter. Microsoft said that result was driven by a 59% increase in revenue for its Azure cloud platform, “due to higher infrastructure-as-a-service and platform-as-a-service consumption-based services and per user-based services.”
Due to cloud growth, revenue in the company’s server and cloud services product category approached $10.5 billion for the quarter, more than double the revenue from the Windows product line for the first time, according to an alternative financial presentation in Microsoft’s 10Q filing with the SEC. The GeekWire chart above shows the revenue trends in those product categories.
The company’s Productivity and Business Processes division, including Office products, grew 15% to $11.7 billion in revenue. More Personal Computing, including Windows for PCs, Surface and Xbox, was up 3 percent to $11 billion in revenue.
Analysts expected the Redmond, Wash.-based company to post $33.66 billion in revenue for three months ending March 31, its third fiscal quarter, an increase of 10% from a year ago, with earnings of $1.26 per share, up from $1.14 a year ago.
Microsoft shares are up more than 4% after-hours.