Abu Dhabi, UAESunday 6 December 2020

Microsoft's quarterly profit climbs 30% as it benefits from Covid-19 shifts

The technology giant's revenue and net profit beat an average of analysts' expectations

Microsoft's revenue increased 12 per cent to $37.2bn. AFP
Microsoft's revenue increased 12 per cent to $37.2bn. AFP

Microsoft posted a 30 per cent increase in first quarter net profit, beating analysts’ estimates as the company benefitted from a shift in the way people are working due to the Covid-19 pandemic.

Net profit rose to $13.9 billion in the three months ending September 30, which was ahead of an average estimate of analysts polled by Bloomberg of $11.9bn.

Revenue during the period increased 12 per cent to $37.2bn, beating analysts' average estimate of $35.8bn. The July-September period marked Microsoft’s 13th straight quarter of double-digit revenue growth.

“The next decade of economic performance for every business will be defined by the speed of their digital transformation,” Satya Nadella, chief executive of the Redmond-headquartered company, said in a statement.

“We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility and reduce costs,” he added.

The company's operating income rose 25 per cent annually to $15.9bn.

“Demand for Microsoft’s cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2bn, up 31 per cent year over year,” Amy Hood, executive vice president and chief financial officer of the technology giant, said.

“We continue to invest against the significant opportunity ahead of us to drive long-term growth,” she added.

Revenue from the company's intelligent cloud business providing server hosting grew 20 per cent year-on-year to $13bn. Its productivity and business processes arm, which includes both its Microsoft Office business and revenue from LinkedIn, increased 11 per cent to $12.3bn.

In its guidance for the second quarter, Microsoft forecast revenue in the range of $39.5bn to $40.4bn, at the lower end of a $40.43bn by analysts polled by Refinitiv.

Microsoft said sales in its personal computing division, which includes PCs and Xbox, increased 6 per cent to $11.8bn.

In the PC market, revenue from sales of its Surface device were up 37 per cent as this segment witnessed increased demand from users to support remote work, Ms Hood said.

Revenues from Xbox content and services increased 30 per cent on the prior year.

Movement restrictions due to the Covid-19 pandemic has propelled user interest in gaming, industry experts said. Microsoft is expected to benefit further from this trend with the launch of the new Xbox Series X and Series S consoles on November 10.

Subscribers to the company’s Xbox Game Pass service increased 50 per cent to 15 million in the first half of this year.

Ms Hood predicted gaming revenue growth will be in the “high 20 per cent range” in the second quarter.

“We expect very strong demand following the launch of our next-generation Xbox Series X and S consoles,” she said during a call with investors.

LinkedIn revenue grew by almost 16 per cent annually with more than 722 million users. Microsoft did not give a dollar figure for LinkedIn revenue.

Daily active users of Microsoft’s Teams videoconferencing and chat software, which competes with Slack Technologies, increased to 115 million, up from 75 million in April.

The company’s search advertising business dropped 10 per cent. Microsoft expects a decline in the “mid-to-high single-digit range” in the second quarter.

Microsoft returned $9.5bn to shareholders in the form of share repurchases and dividends in the first quarter of its 2021 fiscal year, an increase of 21 per cent on the same period last year, the company said.

Updated: October 28, 2020 02:47 PM

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