Microsoft's Q3 profit surges on strong cloud and productivity businesses

Technology company's net profit jumped $16.7bn in January-March quarter

A man stands outside the Microsoft office building in Beijing. The company's sales during the third quarter jumped 18 per cent to almost $49.4 billion. AP

Microsoft reported an 8.2 per cent year-on-year jump in net profit in the third quarter of its 2022 fiscal year, underpinned by double-digit growth in its cloud and productivity businesses.

Net profit soared to more than $16.7 billion in the three months to March 31, nearly $1.3bn more than the same period last year. However, it was 11.2 per cent down on a quarterly basis.

Revenue during the third quarter jumped 18 per cent to almost $49.4bn, exceeding analysts' expectations of $49bn. It was down 4.4 per cent compared to the December quarter.

The third quarter of the 2022 financial year marked the Redmond, Washington-based company’s 19th straight quarter of double-digit revenue growth.

“Going forward, digital technology will be the key input that powers the world’s economic output,” Microsoft chairman and chief executive Satya Nadella said.

“Across the tech stack, we are expanding our opportunity and taking share as we help customers differentiate, build resilience and do more with less,” Mr Nadella said.

Microsoft chief executive Satya Nadella. Reuters

The company's stock, which has dropped almost 20 per cent since the start of 2022 calendar year, reached nearly $265.38 a share in extended-hours trading on Tuesday, nearly 2 per cent down.

Revenue in the company’s intelligent cloud business increased 26 per cent year-on-year to $19.1bn in the third quarter. Driven by Azure — a cloud computing service operated by Microsoft — and other cloud services revenue growth, Microsoft’s server products and cloud services sales increased almost 29 per cent in the three-month period.

“Continued customer commitment to our cloud platform and strong sales execution drove better than expected commercial bookings growth of 28 per cent and Microsoft Cloud revenue,” the company’s executive vice president and chief financial officer Amy Hood said.

The company’s operating income grew 19 per cent to $20.4bn in the previous quarter from the prior year period while the diluted earnings per share was up 9 per cent on an annual basis at $2.22.

The company’s productivity and business processes division, which includes both its Microsoft Office business and revenue from LinkedIn, surged 17 per cent to $15.8bn.

LinkedIn revenue increased almost 34 per cent annually. Microsoft did not give a dollar figure for its LinkedIn revenue and did not disclose the number of users.

Microsoft 365 Consumer (a bundle of various apps) subscribers increased to 58.4 million at the end of the last quarter, up 3.5 per cent on a quarterly basis, the company said.

Sales in the personal computing division rose 11 per cent to $14.5bn in the quarter while surface revenue increased 13 per cent yearly. Microsoft said it saw an increase in the sale of its PCs as more people and businesses adopted hybrid work modes due to the Covid-19 pandemic.

Microsoft agreed to buy video game company Activision Blizzard in a $68.7 billion all-cash deal. Reuters

Search and news advertising revenue increased by 23 per cent annually, while Xbox content and services revenue jumped 4 per cent in the third quarter.

In January, to strengthen its gaming portfolio, Microsoft agreed to buy video game company Activision Blizzard in a $68.7bn all-cash deal. It will make Microsoft the third-largest gaming company in the world by revenue, behind China’s Tencent and Japan’s Sony.

The company spent more than $6.3bn on research and development, about 12.7 per cent of its total sales in the quarter. This is 21.2 per cent more than what was spent on R&D in the same period last year.

Microsoft also returned $12.4bn to shareholders in the form of share repurchases and dividends in the last quarter, a yearly increase of 25 per cent compared to the prior year period.

Updated: April 26, 2022, 10:46 PM