Microsoft (Nasdaq: MSFT) shares were higher prior to the market open following its better-than-expected fiscal Q3 earnings. The company topped analysts' estimates for earnings and revenue, while also issuing guidance that was above consensus. It also demonstrated impressive growth across all major business units.
There is considerable carnage in the stock market especially if we look at it from a bottom-up perspective with only 32% of stocks in the New York Stock Exchange trading above their 200-day moving average. However, the indices are in much better shape due to the outperformance of mega-cap tech stocks like Microsoft which only started to show weakness over the last couple of months.
YTD, Microsoft is down 20%. Prior to its earnings release, the stock was at a critical support level as it was hovering just above its March lows. Overall, the stock has held onto the bulk of its gains from this bull market in contrast to many tech stocks which have given up the bulk of these gains.
Inside the Numbers
In its fiscal Q3, Microsoft reported $2.22 per share in earnings, beating expectations of $2.19 per share. Revenue also beat at $49.4 billion, vs. $49.1 billion and an 18% increase from last year. This is a slight slowing from last quarter's 20% gain.
The company noted a 10% increase in sales and marketing expenditures which reached $5.6 billion due primarily to higher costs. Next quarter, it sees revenue between $52.4 billion and $53.2 billion which was in line with estimates.
Intelligent Cloud saw a 26% increase in revenue to $19.1 billion and above expectations of $18.9 billion. Azure and cloud revenue was 46% higher, slightly above expectations of 44% growth. The number of $100 million deals for Azure more than doubled.
Productivity and Business Processes, which includes Office, saw a 17% increase in revenue which was also above expectations. The company did increase prices for certain software subscriptions. More Personal Computing, which includes Windows, Xbox, Bing and Surface, increased by 11% and also topped expectations.
The company also noted that security revenue rose 45% in 2021 which was the fastest out of all product categories, and a sign of the industry's growing importance.
Excluding the after-hours move, Microsoft stock has declined 19% since the start of 2022, underperforming the S&P 500 index (NYSE: SPY), which is down about 12% over the same period.