Microsoft MSFT reported fiscal 2022 second quarter earnings of $2.48 per share, which beat the Zacks Consensus Estimate by 8.3%. Bottom line increased 22% year over year.
Revenue of $45.3 billion was up 20.1% year over year and beat the Zacks Consensus Estimate by 2.79%.
Strong adoption of Azure cloud offerings boosted the top line. Continued momentum in Teams app usage, advanced security, and identity offerings were other favorable factors.
Commercial bookings were up 32% year-over-year (up 37% to CC), courtesy of consistent execution on new, add-on, and renewal sales moves, as well as large long-term Azure contracts Microsoft signed in reported quarter.
The remaining business performance obligation amounted to $147 billion, an increase of 31% year over year (an increase of 32% in cc). Business income annuity mix was 94%, up 1% year-over-year due to continued shift to cloud infrastructure.
Microsoft Corporation EPS price, consensus and surprise
Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote
Microsoft cloud revenue was $22 billion, up 32% year over year.
Following the announcement, the company’s shares rose 3.6% in premarket trading on January 26. In the past year, shares of this Zacks #2 (Buy) ranked company have returned 24.1% compared to the Zacks IT & Technology sector. 4.2% increase.
segmental details
The Productivity and Business Processes segment, which includes the Office and Dynamics CRM businesses, contributed 30.8% to total revenue. Revenue increased 19.3% (up 19% in cc) year over year to $15.94 billion.
Revenue from commercial office products and cloud services increased 14% (same percentage in cc) year over year. Office 365 commercial revenue increased 19% (same rate in cc). The advantage can be attributed to the strong growth of the installed base and the average expansion of revenue per user.
E5’s revenue growth was driven by strength in advanced security, compliance and voice components.
Office 365 paid business positions increased 16% year over year, driven by growth in small and medium-sized businesses, as well as openings from frontline workers.
Revenue from Office Consumer products and cloud services increased 15% (same percentage in cc), driven by growth in Microsoft 365 subscription revenue. Microsoft 365 Consumer subscribers totaled 56.4 million as of end of the second fiscal quarter.
Dynamics products and cloud services business increased 29% (same percentage in cc) year over year. Dynamics 365 revenue was up 45% (44% cc) and Power Apps revenue was up 202% (up 197% cc), Microsoft said.
LinkedIn revenue was up 37% from prior year quarter levels (up 36% cc), driven by the continued strength of Marketing Solutions, which grew 43% year-over-year, and strong performance. better than expected from Talent Solutions.
Teams surpassed 270 million monthly active users in the reported quarter.
The intelligent cloud segment, including server and enterprise products and services, contributed 35.4% of total revenue. The segment reported revenues of $18.327 billion, up 25.5% (same percentage in cc) year over year.
Server product and cloud services revenue increased 29% year over year (same percentage in cc). The high point was revenue from Azure and other cloud services, which increased 46% year over year (same rate in cc). The rise was driven by strong growth in the consumer-based business.
Revenue from on-premises server products increased 6% year over year due to strong demand for hybrid offerings.
Revenue from the enterprise mobility and security installed base increased 28% to more than 209 million seats.
Business services revenue increased 8% (up 7% cc) in the reported quarter, due to growth in Microsoft consulting services and business support services.
The More Personal Computing segment, which primarily comprises the Windows, Games, Devices and Search businesses, contributed 33.8% to total revenue. Revenue was up 15.5% (same percentage in cc) year over year to $17.465 billion, driven by strength in gaming and Windows OEMs.
Revenue from Windows business products and cloud services increased 13% year over year (up 14% cc), thanks to increased customer adoption of Microsoft 365 offerings.
Windows OEM revenue increased 25% year over year due to the strength of the PC market.
Search advertising revenue, excluding traffic acquisition costs (“TAC”), was up 32% (same percentage in cc) on the ad market recovery.
Acreage revenue increased 8% (same percentage in cc) year over year.
Gaming revenue increased 8%. Xbox hardware revenue grew 4% (up 3% in cc), driven by new consoles.
Xbox content and services revenue increased 10% year over year.
OPERATING RESULTS
Gross profit increased 20.4% year over year to $34.77 billion, driven by strong growth in cloud services.
Gross margin of 67% was unchanged year over year. Microsoft’s cloud gross margin was 71%, also down slightly year over year.
Operating margin expanded 150 bps year over year to 43%.
Productivity & Business Processes operating revenue increased 24.4% to $7.69 billion. Intelligent cloud operating revenue increased 26.3% to $8.2 billion. More Personal computing operating income increased 21.8% to $6.36 billion.
Balance and Cash Flow
As of December 31, 2021, Microsoft had a total balance of cash, cash equivalents and short-term investments of $125.4 billion compared to $130.6 billion as of September 30, 2021.
As of December 31, 2021, long-term debt (including the current portion) was $48.26 billion compared to $53.29 billion as of September 30, 2021.
Operating cash flow for the reported quarter was $14.5 billion compared to $24.5 billion in the prior quarter. Free cash flow for the quarter was $8.6 billion compared to $18.7 billion in the prior quarter.
In the reported quarter, the company returned $10.9 billion to shareholders in the form of share buybacks ($6.2 billion) and dividend payments ($4.7 billion).
guide
For the third quarter of fiscal 2022, the unfavorable exchange rate is expected to hurt revenue growth by 2%.
Productivity and Business Process revenue is anticipated to be between $15.6 billion and $15.85 billion. Strong additional sales opportunity for Microsoft E5 and momentum from Office 365 are expected to drive Office business growth.
Local business is anticipated to decline in the teens due to customers shifting to the cloud.
Office consumer revenue is expected to see growth in the high single-digit range, driven by increases in Microsoft 365 subscription revenue.
LinkedIn revenue growth is forecast to be in the low 30% range. Dynamics revenue growth is expected to be in the mid-20% range, driven by the strength of Dynamics 365, including continued momentum from PowerApps.
Intelligent Cloud revenue is anticipated to be between $18.75 billion and $19 billion. Azure revenue growth is likely to reflect the continued strength of consumption-based services.
Gains from the adoption of the Microsoft 365 suite are expected to drive growth in business per user. However, the company said it expected some moderation in growth given the large size of the installed base.
For the business services business, Microsoft expects revenue growth to be in the low to mid single digits. The local server business is forecast to grow in the low to mid-single digit range, driven by demand for hybrid offerings.
Further revenue from Personal Computing is expected to be between $14.15 billion and $14.45 billion. The company expects overall Windows OEM revenue to grow in the high single digits.
Windows business products and cloud services are expected to grow in the low double-digit range, driven by demand for Microsoft 365 and advanced security solutions.
Search ad revenue, excluding TAC, is projected to grow in the mid-to-high teen range.
Surface revenue is forecast to grow in the mid-teens range, fueled by strong demand for premium devices.
Gaming revenue is forecast to grow in the mid-single digits.
Management expects COGS between $15.5 billion and $15.7 billion. Operating expenses are anticipated in the range of $13.4-$13.5 billion. The unfavorable exchange rate is expected to hurt COGS and operating expense growth by 1%, respectively.
Other actions to consider
littelfuse LFUS, NETGEAR NTGR and principal MNDT are some of the highest ranked stocks that investors can consider in the broader sector. All three stocks sport a Zacks #1 rank (strong buy). You can see the full list of today’s Zacks #1 Rank stocks here.
Littelfuse shares have underperformed the Zacks IT & Technology sector over the past year. Littelfuse returned 0.1% compared to the sector’s increase of 4.3%.
LFUS is scheduled to report Q4 2021 on February 1, 2022.
NETGEAR shares have underperformed the Zacks IT & Technology sector last year. NETGEAR shares are down 32.3%.
NTGR is scheduled to report fourth quarter 2021 results on February 2.
Mandiant shares are down 32.7% in the past year.
MNDT is set to report fourth quarter 2021 results on February 8.
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George is Digismak’s reported cum editor with 13 years of experience in Journalism