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Microsoft's Impressive Results Boosted By Cloud and Gaming

By Danny Vena - Jul 22, 2020 at 6:49PM

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Stay-at-home and remote work drove the tech giant's results higher.

Microsoft (MSFT -0.74%) reported the results of its fiscal fourth quarter (ended June 30) which blew past expectations on the strength of its cloud computing operation and surge in gaming activity. Revenue of $38 billion grew 13% year over year, easily eclipsing analysts' consensus estimates of $36.5 billion, while also surpassing the high end of management's forecast, which topped out at $36.8 billion. 

Earnings per share of $1.46 declined 15%, but included continued investment in cloud computing and one-time charges related to the closure of physical Microsoft Store locations.

Four people on a Microsoft Teams video call.

Image source: Microsoft.

The two headliners were cloud computing and gaming.

Azure grew 47% year over year, leading the intelligent cloud segment to revenue of $13.4 billion, up 17% year over year. Adjusting for foreign currency exchange rate differences, Azure grew 50%. Cloud computing generated $50 billion in revenue for the first time this fiscal year.

Xbox content and services revenue grew $1.2 billion, up an impressive 65% (or 68% in constant currency), which Microsoft credited to the stay-at-home guidelines which continue around the country. The company also noted that Xbox hardware sales jumped 49%, due to increased console sales. This helped drive revenue for the more personal computing segment to $12.9 billion, up 14% (or 16% in constant currency), bringing in $1.2 billion more than Microsoft forecast at the high end of its guidance.

The productivity and business segment did its part, delivering revenue of $11.7 billion, up 15% (16% in constant currency). The highlight was Dynamics 365, which produced revenue growth of 47% (49% in constant currency).

Microsoft noted that it got a lift from Teams, Azure, and Windows Virtual Desktop, "as customers shifted to work and learn from home." The company also saw increased demand for Windows OEM and Surface to support remote work. It wasn't all good news. Advertising took a hit as businesses scaled back on marketing budgets, offsetting some of the revenue increases.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Microsoft. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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