Microsoft extends earnings growth on continued cloud services strength

Microsoft’s earnings growth once again topped 20 per cent in its latest quarter, beating Wall Street expectations, as demand for cloud services continued to buoy its performance.

However, shares in the US software company fell nearly 5 per cent in after-market trading on Tuesday following the earnings release, leaving the stock more than 20 per cent below the record hit late last year amid a broader retreat in tech stocks. The pullback came despite earnings and profit margins that were ahead of many analysts’ expectations.

News of Microsoft’s buoyant end to the year came a week after it revealed an agreement to pay $75bn for gaming company Activision Blizzard. In the latest quarter, the company’s revenue from gaming grew only 8 per cent, with sales of the Xbox console up 4 per cent, due to a challenging comparison the year before when gaming revenue jumped by half.

Amy Hood, chief financial officer, singled out Microsoft’s cloud services as a reason for the latest outperformance, with cloud revenue jumping 32 per cent to $22.1bn. New bookings in the cloud business also came in stronger than Wall Street had been expecting, climbing by 37 per cent.

Overall, Microsoft reported revenue of $51.7bn, up from $43.1bn the previous year and about $800m above expectations. Earnings per share climbed 22 per cent to $2.48, 17 cents ahead of expectations, as its operating profit margin edged up 1 percentage point.