Facebook For Microsoft Third-Quarter Earnings

Facebook For Microsoft Third-Quarter Earnings ...

Microsoft is hoping that it will help calm the nerves of volatile markets once more by producing good sales and earnings figures.

FactSet has reported a $49.02 billion revenue in the March quarter (fiscal third quarter) and a GAAP EPS of $2.18, and a non-GAAP EPS of $2.19 among analysts.

On its earnings call, Microsoft shares primarily revenue guidance for its three business segments. The company's revenue consensus for the June quarter was $52.75 billion (up 14%).

Microsoft's earnings report, which is expected following the bell, will be live-blogging, along with a earnings call scheduled for 5:30 PM Eastern Time. (Please refresh your browser for updates.)

Microsoft's earnings call has withdrawn after going into the earnings call somewhat, despite FQ3 sales and EPS beats, and shares have risen 4.1 percent after-hours to $283.40, aided by the better-than-feared sales guidance provided on the call.

Microsoft has been pushed for its three operations to collectively produce FQ4 revenues of $52.4 billion to $53.2 billion vs. a $52.75 billion consensus at its midpoint. The objective is to expect 14% Y/Y revenue growth.

FQ3 revenue increased 18% Y/Y in dollars and 21% in constant currency, fueled by 46% Azure revenue growth, 34% LinkedIn growth, and double-digit growth for Microsoft's Office and Windows businesses. Additionally, Microsoft's commercial bookings increased by 35% Y/Y (30% excluding Nuance), which in turn helped its commercial RPO (contract backlog) increase 32% to $155 billion.

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A question about the durability of the Windows business at 6:35 PM ET.

Windows is the connector for Microsoft 365. We agree with the commercial Windows adoption. PCs remain an important feature in people's lives. There will be cyclicality, but demand has structurally increased.

Hood claims that Windows demand has evolved from being more commercial-driven during the epidemic to being more diversified.

A question about Nuance's strategic value at 6:32 PM ET.

Nuance is a platform for AI-driven apps in industries such as healthcare and enterprise contact centers. We're extremely interested in Nuance becoming a member of the Microsoft family. Tackling healthcare issues such as physician burdens is an opportunity.

A question about Microsoft's chances of taking part in the tech world at 6:28 PM ET.

The value of Argues Microsoft is being created at three levels in the technology stack: the infrastructure layer, the AI layer, and the UI layer. All three layers are being differentiated.

A question on Azure's performance at 6:24 PM ET.

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Azure's demand is strong across customer types and workloads, while Azure's end-to-end "data fabric" will be a significant differenceiator in the future. However, there's still a lot of growth ahead.

A question about on-prem server software constraints at 6:21 PM ET. Is it Microsoft specific or a broader issue?

Hood claims that transition from on-prem to cloud was not comparable to that of the previous day. Notes that recent changes to Microsoft's partner program that went into effect on January 1 are having a long-term impact.

6:30:19 PM ET: A question about how far apart Microsoft is in its Office 365 upsell opportunity (from E3 plans to E5 plans) and also on Office's interactions with front-line workers.

Hood: Front-line workers and SMBs pushed the seat growth quite heavily. That's why ARPU growth is increasing. E5 provides a lot of value to customers in terms of security, compliance, analytics, and more.

Nadella adds that emerging markets have also become a growth driver for Office. Moreover, usage statistics show that new highs are being recorded everywhere.

A question is asked whether Microsoft is modifying its guidance methods at 6:16 PM ET.

Hood claims that Microsoft's methodology hasn't changed, while he points out that if manufacturing shutdowns in China continue until May, it would affect Microsoft's more personal computing revenues.

The Q&A session has begun at 6:14 PM. The first question is about Microsoft's confidence in the future.

Nadella: Our competitiveness in the technology arena boosts us confidence as well as our ability to monetize our consumer base. We have price leadership in many companies. Providing more value for less price helps you win in this climate.

He claims that companies are not attempting to cut IT expenditures in this manner; and reiterates his belief that software/automation investments can assist businesses cope with inflationary demands.

Hood explains that Microsoft still has a lot of room to expand its sales within its total addressable market (TAM).

According to Hood, Microsoft expects constant-currency Azure revenue growth (49% in FQ3) to drop by two points in FQ4, and on-prem server software revenues to fall by a low-single-digit % because of a tough competition. Windows OEM revenue is expected to increase by a low-to-mid single-digit %.

FQ4 revenue guidance by segment 6:08 PM ET

Productivity & Business Processes: $16.65B-$16.9B vs. a $16.68B consensusIntelligent Cloud -$21.1B-$21.35B vs. a $20.88B consensusIntelligent Cloud - $14.65B-$14.95B vs. a $14.95B consensus

Markets like the guidance. Shares are up 6.1 percent after-hours.

Hood: Commercial bookings should see "healthy growth" against a strong prior-year comp. Capex will continue to grow.

Hood forecasts that forex will have a two-point impact on Microsoft's total FQ4 revenue growth. Russia/Ukraine is also expected to have a $110 million impact.

Hood claims that Microsoft 365 subscriptions improved Windows Commercial revenue, as well as a greater mix of in-period contract revenue recognition. Despite the fact that Xbox hardware revenue was better than predicted, according to a increase in supply.

Hood notes that Smart Cloud revenue was ahead of expectations even after accounting for Nuance's impact. Nuance also claims that it did not affect continuous-currency growth rates for Azure or server products revenues.

Consumer subscriptions for Microsoft 365 rose 16% to 58.4 million, according to LinkedIn, who reported higher Talent Solutions earnings than expected.

Hood is recording Productivity & Business Process' performance at 5:55 PM ET. She reports that Microsoft now has around 345M Office 365 commercial seats (+16% Y/Y).

Hood notes that Microsoft's headcount increased by 20% Y/Y or 16%, excluding Nuance's impact. The operating margin increased 2 points Y/Y.

Investors like the call so far. Shares are up 1.6 percent after-hours at 5:52 PM ET.

Hood, a news outlet, said commercial bookings were much better than anticipated. We benefited from robust annuity sales motions and Azure long-term contracts. Nuance provided a 5-point advantage to bookings.

Hood notes that the Nuance acquisition (closed in March) increased FQ3 revenue by $111 million and slightly reduced EPS. Nuance will be minimally dilutive to FY22 non-GAAP EPS and accretive to FY23 EPS.

She claims that forex was a bigger headwind than she anticipated, and that retaliation for suspending operations in Russia had slowed.

Amy Hood is in the mood for a talk at 5:48 PM ET.

Nadella claims that Xbox Series S/X have taken a console share in the last two quarters, and that more than 10 million people have used Microsoft's cloud gaming services to stream games to date. Azure gaming revenues are up 66% year-to-date in fiscal 2022.

Nadella believes Microsoft's multi-cloud efforts are a competitive advantage. Azure Active Directors now has more than 550 million MAUs.

Nadella: Microsoft's Start news feed now has 500 million users every month at 5:45 PM ET.

Nadella claims that Team usage "has never been higher" and is increasing in every segment. Microsoft's Viva employee engagement platform (integrated with Teams) now has over 10 million users.

Nadella: At least 830 million LinkedIn users, its Talent Solutions revenue has increased by 43% year on year. 28M users subscribe to at least one newsletter on LinkedIn.

Nadella claims that Microsoft's Power platform exceeded $2 billion in revenue over the past 12 months. The Power BI data visualization platform boasts over 200 million customers.

Nadella: Visual Studio has more than 31 million monthly users. 90% of Fortune 100 users are using GitHub.

Nadella highlights Microsoft's Azure Cosmos DB and Synapse cloud databases with triple-digit usage. A total of 86 percent inference requests for Azure's machine learning services has been made.

Nadella claims that Microsoft is expanding its potential and taking part across the IT division, and that it is seeing "larger, more strategic, Azure commitments." $100 million+ Azure has more than doubled the year 2014.

Nadella is on the verge of being questioned at 5:33 PM ET.

Microsoft is going over its safe-harbor statements, according to CEO Satya Nadella and CFO Amy Hood, then answering phone inquiries from analysts. Hood shares Microsoft's quarterly guidance towards the end of her prepared remarks.

The call is on the way back to 5:30 PM.

One correction: Microsoft ended March with $104.7 billion in cash and short-term investments, and $49.9 billion in debt. The previously-stated figures are for Microsoft's year-ago quarter.

I'll be covering this at 5:25 PM ET, which I'll be covering in a few minutes.

I'll take a short break but will be back to cover Microsoft's earnings call, which starts at 5:30 ET and should provide Microsoft's FQ4 sales guidance. Shares are currently down 1.5 percent after-hours despite Microsoft's guidance on FQ3 sales and EPS.

Microsoft finished March with $125.4 billion in cash and short-term investments, and $58.1 billion in debt, with $20 billion in free cash flow (+17% Y/Y) partly offset by $7.8 billion in buybacks. As a reminder, the company is expected to pay $68.7 billion in cash (provided regulators sign off) to acquire Activision Blizzard.

Microsoft received $104.7 billion in cash and short-term investments, as well as $49.9 billion in debt.

Microsoft said that operating system revenue (grew 11% vs. guidance for high-single-digit growth) benefited from ongoing commercial PC strength (the company's revenue/license is higher for commercial PCs than for consumer PCs).

Due to the amount of back-and-forth that has been experienced in recent years about PC demand, there are a lot of signs right now that low-end consumer PC demand is declining, but business PC demand is still holding up well for now.

One interesting issue from Microsoft's slide deck: Office commercial products earnings (it covers traditional Office licenses rather than Office 365 subscriptions) decreased by 28% year on year, the highest level since FQ2's 17% decrease and guidance for a high-teens decrease.

Despite this, Microsoft's total Office commercial income increased by 12% (compares with 14% in FQ2), indicating a faster-than-expected Office 365 transition.

Microsoft's stock has dropped 1.2 percent since April, according to the Q1 report. Alphabet's stock has dropped 6%, but it is weighing on tech stocks after-hours.

We'll see if Microsoft's sales guidance (expected to be shared on the earnings call) might once again be a boost for the stock.

On a GAAP basis, Microsoft's operating expenses increased 15% year on year, up from 18% to the same amount of revenue. Sales hires and Azure R&D have been among the leading contributors to the growth of opex.

Microsoft's bookings/RPO numbers for recent quarters. These are some impressive numbers for a corporation of Microsoft's size. Long-term Azure contracts have been a major tailwind for bookings/RPO growth.

"We've had a lot of success with Microsoft," said Mike Phelps, who walked out of the company's expectations in January, according to reports. Microsoft, for example, paid for Office Consumer, LinkedIn, search/news ads, Windows Commercial, Windows OEM, and slightly missed its guidance for Dynamics and Xbox content and services.

Azure was not in-line -- Microsoft was guiding for constant currency Azure growth to improve, with 49% rise from FQ2's 46%. In dollars, Azure was down to 46 percent.

$6.3 billion was spent on capex at the time of the 4:28 PM ET. This compares to $6.8 billion in FQ2 and $6 billion last year.

Boosting EPS at 4:26 PM ET: Microsoft spent $7.8 billion on buybacks during FQ3, up from $6.2 billion in FQ2.

Microsoft's FQ3 performance for its reported product/service lines at 4:24 AM ET. Every reported business has experienced double-digit growth outperforming Xbox content/services.

On note, forex was a three-point turnout toward Microsoft's FQ3 revenue growth, a one-point higher than it was in January. Revenue increased 18% Y/Y in dollars and 21% in constant currency.

For those interested, Sunday morning's service is 4:15 PM ET.

The discussion continues at 4:14 PM ET: Microsoft's stock is now up 0.6 percentAH.

WIP: Microsoft's commercial bookings increased by 28% Y/Y despite a nasty comp (bookings increased by 39% in the year-ago period) that boosted Microsoft's commercial RPO (contract backlog) by 32% to $155 billion.

Bookings have risen by 35% in constant demand, with the return of returns continuing.

Microsoft's FQ3 earnings by segment: 4:11 PM ET

Productivity and Business Processes - $15.79B, +17% Y/Y and slightly above a $15.75B consensusIntelligent Cloud - $19.05B, +29% and above an $18.89B consensusMore Personal Computing - $14.52B, +11% and above a $14.3B consensus

Shares have changed their mind since Microsoft was down 2.2 percent for the first time. For the time being, markets maintain the take-no-prisoners feel they should during regular trading.

Azure and other cloud services revenue increased by 46% year over year, corresponding to FQ2.

After-hours, stocks increase by 1 percent.

Results are out at 4:04 PM ET. FQ3 profit of $49.36 billion surpasses a $49.02B consensus. GAAP EPS of $2.22 surpasses a $2.18 consensus

Microsoft closed 3.7 percent at 4:00 PM ET. The FQ3 report should be released shortly.

Microsoft's stock is down 3.5 percent to $270.80 during its FQ3 report, despite a 3.7% decline for the Nasdaq. Shares are down 20% YTD and 3% in the last 12 months.

The FactSet consensus is for Microsoft to report FQ3 revenue of $49.02 billion, GAAP EPS of $2.18, and non-GAAP EPS of $2.19. The FQ4 revenue consensus is $52.75 billion.

Eric Jhonsa's report and call will be live-blogging. 3:51 PM ET

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