Microsoft's Q2 profit climbs as Covid-19 boosts PC, gaming and cloud businesses

The technology giant's net profit rose to $15.5bn in the three months ending December 31

People walk past a Microsoft store in the Manhattan. The company reported a 17 per cent increase in the last quarter's revenue to $43.1 billion. Reuters

Microsoft posted a 33 per cent year-on-year increase in second quarter net profit as the Covid-19 pandemic boosted the company’s personal computing, gaming and cloud businesses.

Net profit rose to $15.5 billion in the three months ending December 31.

Revenue during the period increased 17 per cent to $43.1bn, beating analysts' average estimate of $40.12bn. The October-December period marked Microsoft’s 14th straight quarter of double-digit revenue growth.

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” Satya Nadella, chief executive of Microsoft, said.

"Building their own digital capability is the new currency driving every organisation's resilience and growth … Microsoft is powering this shift with the world's largest and most comprehensive cloud platform," he added.

In its guidance for the third quarter, Microsoft forecast revenue in the range of $40.35bn to $41.25bn, which is higher than a $38.70bn consensus among analysts polled by Refinitiv.

Microsoft's share price closed up 1.22 per cent at $232.33 on Tuesday, but rose by a further 3.7 per cent in after-hours trading to $240.92.

The company's operating income surged 29 per cent on the prior year to $17.9bn in the second quarter.

Microsoft said sales in its intelligent cloud business providing server hosting grew 23 per cent year-on-year to $14.6bn. Its productivity and business processes division, which includes both its Microsoft Office business and revenue from LinkedIn, increased 13 per cent to $13.4bn.

“Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7bn, up 34 per cent year-on-year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to benefit from our investments in strategic, high-growth areas.”

Movement restrictions due to the Covid-19 pandemic has propelled user interest in gaming, industry experts said. Microsoft benefited from the launch of the new Xbox Series X and Series S consoles in November.

Revenue from the company’s personal computing arm, which includes PCs and gaming brand Xbox, increased 14 per cent annually to $15.1bn.

In the PC market, revenue from sales of its Surface device were up 3 per cent, while earnings from the Xbox content and services division were up 40 per cent on the prior year.

LinkedIn revenue grew by almost 23 per cent annually. Microsoft did not give a dollar figure for LinkedIn revenue and did not disclose the number of users.

Microsoft invested almost $5bn on research and development during the quarter, almost $296 million more than the same period last year.

The company returned $10bn to shareholders in the form of share repurchases and dividends during the quarter, an annual increase of 18 per cent.

"The future looks promising with more growth potential," Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said. "Microsoft results didn’t only surprise investors to the upside, but got them to dream for more."