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Microsoft Predicts Strong Forecast, Shares Surge

Microsoft Predicts Strong Forecast, Shares Surge
Microsoft's revenue projection for the latest completed quarter is expected to be well ahead of Wall Street expectations, thanks in part to its Intelligent Cloud subsidiary.
The projection assuaged fears about growth spurred by the December quarter's results, which initially impacted Microsoft's stock in after-hours trading. Following the outlook, however, the stock reversed course, trading 3 per cent higher than the previous day's close.
Microsoft provided investors with confidence that the enterprise cloud business is still growing fast.
"So the quarter itself was, ho hum. Good, but not as great as we've seen past quarters," said Brent Thill, an analyst at Jefferies. "But then the guidance for the third quarter really turned the tape around and saved the Nasdaq, if you will."
Microsoft's estimate that Azure revenue will increase progressively, according to Thill, was "strong assurance" that demand for its cloud services was high.
Microsoft expects Intelligent Cloud revenue to be between $18.75 billion and $19 billion in the third quarter of its fiscal year, because of "solid growth" in its Azure platform. According to Refinitiv statistics, this compares to a Wall Street estimate of $18.15 billion.
Thill believes that Microsoft's strong cloud computing momentum will be mirrored in upcoming results from rivals Inc and Alphabet Inc's (GOOGL.O) Google.
Microsoft also provided positive outlooks in other areas.
More Computing units predicts sales to be between $14.15 billion and $14.45 billion in the third quarter, higher than Wall Street's forecast of $13.88 billion, and Productivity and Business Processes to be between $15.6 billion and $15.85 billion, compared to the consensus forecast of $15.72 billion.
Operating margins for the full year are expected to be marginally higher than the previous year.
Although Microsoft's total second-quarter revenue exceeded estimates, Azure revenue growth of 46 per cent was only in line with analyst projections, according to Visible Alpha. Azure growth has been steadily decreasing since fiscal 2020, when it was in the 60 percent area.
Microsoft has become one of the most valuable companies of the world by focusing heavily on corporate software and services, particularly its cloud services and the web-based version of its Outlook email and calendar software, known as Office 365, which benefited from the shift to working and learning from home during the pandemic. The pandemic-fueled shift online boosted demand for cloud services from Microsoft and competitors and Alphabet.
Microsoft's largest sector, which offers cloud services and includes Azure, its main cloud product, saw a 26 per cent growth in revenue in the quarter, while the business that houses its Office 365 services saw a 19 per cent increase.
The company's net income increased to $18.77 billion, or $2.48 per share, from $15.46 billion, or $2.03 per share, the previous year.
Revenue increased to $51.73 billion in the three months ended Dec. 31 from $43.08 billion a year earlier, according to the business. According to Refinitiv data, analysts predicted revenue of $50.88 billion on average.
Investors are also paying attention to Microsoft's proposed $69 billion acquisition of Activision Blizzard Inc, which was announced on Jan. 18 read more and represents a significant expansion of the company's gaming division. It also expands the company's efforts in the "metaverse," or the blending of online and offline worlds, which will have both corporate and consumer uses.
The Activision Blizzard merger, according to Microsoft, will help raise Xbox content and service income.
From a high in the fourth quarter of fiscal 2020, when Xbox content and services climbed by 65 per cent, growth has slowed dramatically. Revenue increased 10% in the most recent quarter, compared to 40% in the previous quarter.
"They have a ton of great content and franchises. And that's where that revenue would eventually come in when the deal lands, for sure," said Brett Iversen, general manager, investor relations at Microsoft, referring to the Activision deal.

Christopher J. Mitchell

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