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Microsoft turns on earnings after raising prices for Office; stock jump after strong forecast

Microsoft Corp. surpassed earnings and sales estimates and produced stronger-than-expected revenue across all of its business segments in an earnings report on Tuesday, and shares also jumped after executives’ forecast beat estimates.

Microsoft MSFT,
-3.74%
reported third-quarter financial earnings of $ 16.73 billion, or $ 2.22 per share, up from $ 2.03 per share a year ago. Revenue rose to $ 49.36 billion from $ 41.71 billion in the same period last year. Analysts expected an average earnings of $ 2.19 per share on sales of $ 49 billion, according to FactSet.

Microsoft shares fell more than 2% in after-hours trading immediately after the results were announced, but then returned to small gains in choppy action before getting a big boost from a forecast delivered during a later conference call. The stock recently rose more than 5% in the extended session. The stock closed down 3.7% to $ 270.22.

Microsoft’s software business increased sales by more than $ 2 billion after the company significantly raised prices across the board on its popular Office 365 suite of products for the first time since moving to a cloud offering for it a decade ago. Sales in the “Productivity and Business Solutions” segment rose to $ 15.79 billion from $ 13.55 billion a year ago, while analysts averaged $ 15.75 billion according to FactSet.

The Office 365 price hike, which was announced last year, was due to take effect in early March, but the company delayed the price hike for some customers. Jefferies analysts noted that customers may have jumped in the lower prices by signing new deals before the price increase, which would be a boon for the third quarter but could weigh on the company’s forecast for the rest of the year.

“Office may have benefited from a pull-forward since the price increases took effect on March 1, as some customers may have renewed before the increase. This strength may be a potential risk for Office upwards for the rest of this calendar year,” the analysts wrote in a note on April 18, while maintaining a purchase valuation and $ 400 price target.

Microsoft’s CFO Amy Hood guided a fourth-quarter financial software sale of $ 16.65 billion to $ 16.9 billion, while analysts estimated $ 16.68 billion, suggesting that any weakness would not be felt in the current quarter.

Microsoft’s most lucrative segment is “Intelligent Cloud”, which includes its Azure cloud computing product as well as sales of servers and other local products. The cloud segment reported revenue of $ 19.05 billion, up from $ 15.19 billion a year ago, while analysts averaged $ 18.89 billion. Microsoft said Azure revenue increased 46%; the company does not distribute revenue specifically for Azure, although competitors Amazon.com Inc. AMZN,
-4.58%
and Alphabet Inc. GOOGL,
-3.59%

GOOG,
-3.04%
state sales for their competitive platforms, Amazon Web Services and Google Cloud, respectively.

Microsoft’s “More Personal Computing” segment grew to $ 14.52 billion in sales from $ 13.04 billion a year ago, despite fears that a pandemic boom in personal computer sales has come to an end. Analysts had forecast sales of $ 14.3 billion on average, and fourth-quarter forecasts suggest slower growth in the segment is on the horizon.

Hood’s forecast called for fourth-quarter revenue of $ 52.4 billion to $ 53.2 billion, while analysts expected $ 52.75 billion. After the forecast was delivered, shares rose as they did three months ago.

Microsoft shares have fallen 19.7% so far this year, as the S&P 500 index SPX,
-2.81%
has fallen 9.9 per cent. The decline puts Microsoft at risk of falling to below $ 2 billion for the first time since June 2021, according to FactSet data; at the closing price, Microsoft had a valuation of about $ 2.03 trillion.

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