Company / Analytics

Analytics, 27 January 2021

Microsoft record Q2 revenue: cloud business grows

Microsoft reported Q2 2021 earnings that easily beat analysts’ expectations on the top and bottom lines, driven by pandemic-induced cloud business sales that hit a three-month record.

Read our analysis on the company, outlook, and analyst recommendations on the stock.

How did the company perform?

The Q2 2021 results signal that the Covid-19 pandemic is continuing to drive the tech giant’s business — from computers and gaming systems to the cloud computing systems, helping companies navigate continued remote working.

During the quarter, Microsoft posted $43.1 billion in revenue for its fiscal — a 17% increase from the same period last year and well above the $40.2 billion analysts had predicted. Income hit $15.5 billion, or $2.03 per share, compared with the $1.64 earnings per share Wall Street predicted. Below is a summary of the quarter as compiled by Bloomberg.

How did the stock move?

On Tuesday Microsoft stock closed at $232.33 per share, posting a new all-time high for the first time since September. Excluding the after-hours move, Microsoft shares are up around 5% since the start of 2021, while the S&P 500 index is up about 3%. Shares were up 2% in midday trading on Wednesday, trading at $235.30 at the time of writing.

What’s driving the growth?

Microsoft’s cloud business continues to drive the company’s stock price, as organizations across the world look to the Redmond-based Windows maker for their connected infrastructure needs.

Microsoft is currently the second-largest cloud provider behind only Amazon and its Amazon Web Services suite of cloud offerings. Analysts predict that the cloud business sector is will continue unabated.

The company is also boosting investments in the sector. The company recently announced that it was investing $2 billion to be the preferred cloud provider of the GM and Honda-backed autonomous vehicle firm Cruise. In its role, Microsoft will provide cloud infrastructure for Cruise to better enable autonomous vehicles to navigate highways and surface streets in the future.

Microsoft CEO Microsoft CEO Satya Nadella said in a statement that “What we have witnessed over the past year is the dawn of the second wave of the digital transformation sweeping every company and every industry.” Indeed, the current wave of work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure growth remaining brisk.

Consumer products also saw a boost on the back of continued sales of home laptops and desktops needed by workers who can’t head into the office, and children unable to attend school in person.

On the gaming side, Microsoft’s products fared well in the first few weeks following the launch of its Xbox Series S and Xbox Series X. Xbox content and services revenue was up a whopping 40% in the quarter.

What does the outlook look like?

Microsoft expects the strong growth in its cloud business to continue — it projects that revenue from its intelligent cloud segment, which includes Azure, will grow as much as 21.5% during the current quarter, which ends March 31.

The new Xbox Series X and Series S consoles generated massive demand during the December quarter — so much so that retailers had a hard time keeping them stocked and Microsoft asked chipmaker AMD for help in making more available.

For the full fiscal year 2021, Hood said the company expects to generate double-digit growth of both revenue and operating income.

Is it time to buy or sell Microsoft?

The current consensus among 34 polled investment analysts is to buy stock in Microsoft Corp. The 31 analysts offering 12-month price forecasts for Microsoft Corp have a median target of 275.00, with a high estimate of 315.00 and a low estimate of 220.00. The median estimate represents a +16.60% increase from the last price of 235.85, according to CNN Business.

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