Microsoft Q3: Azure Drives Earnings Beat

Microsoft (NASDAQ:MSFT) reported its fiscal Q3 on April 24. The company beat consensus estimates on the back of broad-based strength and led by Azure. While the company’s overall revenues grew to $30.6 billion (+14% y-o-y), Azure grew 73%. Furthermore, Microsoft has guided for 13-15% y-o-y growth in its Intelligent Cloud segment for Q4.

We have increased our price estimate to $122 per share for Microsoft, which is about in line with the current market price. Our interactive dashboard on Microsoft’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation, and see more Trefis technology company data here.

Highlights From Q3:

• Productivity and Business Processes revenue grew to $10.2 billion (+14% y-o-y), with expectations of Q4 revenue between $10.55-$10.75 billion (+9-11% y-o-y)
  • Office Commercial products and cloud services grew 12% y-o-y, driven by Office 365 Commercial
  • Office Consumer products and cloud services revenue increased 8% y-o-y
  • LinkedIn revenue grew 27% y-o-y
  • Dynamics products and cloud services revenue increased 13% y-o-y, driven by Dynamics 365
• Intelligent Cloud revenue grew to $9.7 billion (+22% y-o-y), with expectations of Q4 revenue between $10.85-$11.05 billion (+13-15% y-o-y)
  • Azure revenue grew 73% y-o-y, allaying concerns of a potential slowdown in the company’s cloud business; Overall server products and cloud services revenue grew 27% y-o-y
  • Enterprise Services grew 4% y-o-y
• More Personal Computing revenue grew to $10.7 billion (+8% y-o-y), with expectations of Q4 revenue between $10.8-$11.1 billion (-0.1% to +2.7% y-o-y)
  • Windows OEM revenue grew 9%
  • Windows Commercial products and cloud services revenue grew 18% y-o-y
  • Surface revenue grew 21% y-o-y
  • Gaming revenue increased 5% y-o-y driven by Xbox
  • Search advertising revenue (ex- traffic acquisition costs) grew 12% y-o-y
  • Strength in Windows revenue (+18% y-o-y) was offset by weakness in gaming revenue (+5% y-o-y), which is likely to be weaker in Q4 also
• For fiscal year 2020, the company’s management expects revenue and operating income to register double digit growth

The company attributes the strength in cloud towards hybrid adoption and its ability to facilitate digital transformations. Based on the results and management commentary, we have updated our estimate price to $122 per share.

Do not agree with our forecast? Create your own price forecast for Microsoft’s Price Estimate by changing the base inputs (blue dots) on our interactive dashboard.