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Dow Jones Tumbles 850 Points on Pandemic Fears; Microsoft Stock Sinks After Strong Earnings; Boeing Announces Layoffs

By Timothy Green – Updated Oct 28, 2020 at 8:39AM

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Revenue and earnings growth for Microsoft wasn't enough to push the stock higher, and Boeing is looking to cut costs further as demand dries up.

The COVID-19 pandemic is setting records in the U.S. and Europe in terms of confirmed cases. Both Germany and France are implementing new measures to slow the spread, and some cities and states in the U.S. may not be far behind. The U.S. recorded about 73,000 cases of COVID-19 on Tuesday, according to Johns Hopkins University.

Fears of a winter wave of COVID-19 shutting down economies led the major stock indexes to plunge on Wednesday, with the Dow Jones Industrial Average (^DJI 1.26%) down 2.95% at 1:55 p.m. EDT. Microsoft (MSFT 1.50%) and Boeing (BA 0.66%) beat analyst expectations with their quarterly reports, but the market rout was too much to overcome for both stocks.

A cloud.

Image source: Getty Images.

Microsoft's strong earnings no match for market decline

There was little evidence in Microsoft's fiscal first-quarter report that the pandemic was causing any real problems for the tech giant. Total revenue soared 12% to $37.2 billion, while earnings per share rose 32% to $1.82. Those numbers beat analyst expectations by $1.42 billion and $0.28, respectively.

Productivity and business processes revenue jumped 11% to $12.3 billion, driven by strong growth for Office, LinkedIn, and Dynamics; intelligent cloud revenue surged 20% to $13 billion thanks to 47% sales growth for the Azure cloud platform; and more personal computing revenue rose 6% to $11.8 billion on the strength of gaming and hardware sales.

Despite the exceptional results, shares of Microsoft were down about 4.1% by Wednesday afternoon. The company's guidance issued in the earnings call may have something to do with it. The big miss was for the more personal computing segment: Microsoft expects second-quarter revenue between $13.2 billion and $13.6 billion for the segment, below analyst expectations of $14 billion. Windows revenue is expected to drop by a high single-digit percentage.

In the cloud business, Microsoft is expecting the per-user revenue growth rate to moderate as strong growth continues for consumption-based revenue. The on-premises server business is expected to decline by a low single-digit percentage, driven by weak transactional software sales and a tough year-over-year comparison.

There wasn't much to dislike about Microsoft's results, and its guidance was only modestly negative. Still, the stock is priced for near-perfection after an epic rally this year. Shares trade for around 33 times earnings today, and they were trading for around 40 times earnings in early September. That's a historically high valuation for the trillion-dollar company.

Microsoft stock is still up around 30% so far this year after Wednesday's decline.

Boeing ramps up layoffs

Boeing beat analyst expectations by a wide margin with its third-quarter results, but like Microsoft the stock tumbled on a rough day for the stock market. Boeing reported revenue of $14.1 billion, down 29% year over year and $140 million ahead of analyst estimates. Adjusted EPS was a loss of $1.39, a full $0.55 better than analysts were expecting. Boeing stock was down 3.3% by Wednesday afternoon.

Boeing delivered 28 commercial airplanes during the quarter, down 55% year over year. The COVID-19 pandemic played the biggest role in the decline, but the company was also hit with quality issues and rework related to the 787.

Boeing expects the aviation industry to return to 2019 levels of passenger volumes in about three years, and it sees the resumption of the long-term growth trend a few years after that. In response to the expected lower demand in the coming years, Boeing is consolidating production of its 787 and is planning to eliminate an additional 7,000 jobs.

Including Wednesday's decline, Boeing stock is now down about 54% since the start of the year.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. 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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