Microsoft beats expectations with $51.7B in income, $18.8B revenue; inventory down 5% after hours

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Microsoft’s Redmond Washington campus. (GeekWire Photo / Todd Bishop)

Microsoft posted revenue of $51.7 billion in the December quarter, up 20% from the same quarter last year, and profits of $18.8 billion, an increase of 21%, with earnings per share of $2.48, up 22%.

The results were fueled by continued adoption of Microsoft’s Azure cloud computing platform and across-the-board growth in its major business lines. Microsoft Cloud revenue rose 32% to $22.1 billion for the quarter*.

The numbers easily surpassed Wall Street’s expectations. Analysts were looking for Microsoft to report $50.1 billion in revenue and profits of $2.31 per share.

Microsoft shares are down 5% in after-hours trading. Dan Ives, a Wedbush analyst, offers this reasoning in a note to clients: “The stock is selling off after market as Azure growth came in at 46% and beat the Street at 45% but was lower than some bullish whisper numbers at 48%.”

[Update, Wednesday morning: In early trading, Microsoft stock is now $302/share, up 5% from its previous closing price, or roughly 10% higher than it was trading after-hours following the earnings report.]

The company overcame supply chain shortages to post an 8% increase in its Surface hardware business, topping $2.2 billion in revenue for the peak holiday shopping season. Microsoft credited Surface Laptop for the growth. Surface Laptop 4 launched last year.

Revenue in the Windows business was up about 20% overall to $6.6 billion. From the company’s 10Q filing with the SEC, here is Microsoft’s explanation …

“Windows revenue increased $1.1 billion or 20% driven by growth in Windows OEM and Windows Commercial. Windows OEM revenue increased 25%, including 6 points of positive impact from the Windows 11 revenue deferral, driven by continued growth in the PC market, particularly in commercial which has higher revenue per license. Windows Commercial products and cloud services revenue increased 13% driven by demand for Microsoft 365.”

Total gaming revenue was $5.4 billion. Here’s what happened in Microsoft Gaming for the quarter.

“Gaming revenue increased $411 million or 8% on a strong prior year comparable that benefited from Xbox Series X|S launches and stay-at-home scenarios, driven by growth in Xbox content and services. Xbox content and services revenue increased 10% driven by growth in first-party titles and Xbox Game Pass subscriptions, offset in part by a decline in third-party titles. Xbox hardware revenue increased 4% due to continued demand for Xbox Series X|S.”

Here’s our chart, including the latest number.

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Of course, this does not include any results from Activision Blizzard, which Microsoft announced plans to acquire for $68.7 billion last week. That deal isn’t scheduled to close until next year. Microsoft isn’t expected to give any new information about the Activision-Blizzard deal in conjunction with today’s earnings release.

Revenue for Office and related cloud services was $11.3 billion, up 14%.

LinkedIn revenue rose 37% to $3.5 billion. Microsoft said the result was “driven by advertising demand in our Marketing Solutions business and an improving job market in our Talent Solutions business.”

* Microsoft Cloud, previously known as Commercial Cloud, includes “Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties.”

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