Microsoft beats revenue expectations as pandemic continues to fuel sales

Microsoft exceeded Wall Street analysts’ expectations for quarterly revenue by nearly $3 billion, it reported Tuesday.

The results signal that the pandemic is continuing to buoy the tech giant’s business — from computers and gaming systems to the cloud computing systems helping companies navigate continued remote working.

Microsoft posted $43.1 billion in revenue for its fiscal second quarter — a 17% increase from the same period in the prior year and well above the $40.2 billion analysts had predicted. Income hit $15.5 billion, or $2.03 per share, compared with the $1.64 earnings per share Wall Street predicted.

The company’s stock shot up as much as 6% in after-hours trading immediately following the report, before tapering slightly.

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” Microsoft CEO Satya Nadella said in a statement. “Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”

Microsoft’s cloud computing continues to drive sales, as the pandemic has sped up many companies’ transitions away from operating their own servers. Revenue growth from Microsoft’s Azure cloud platform, which competes with Amazon Web Services and Google Cloud, accelerated from the previous quarter to 50%.

Commercial cloud revenue — which includes Office 365 Commercial, an essential tool for many businesses whose employees are still working from home — posted year-over-year growth of 34%, totaling $16.7 billion.

“This cloud shift and WFH dynamic looks here to stay and the company stands to be a major beneficiary of this trend,” Wedbush analyst Dan Ives said in a note to investors Tuesday.

During the quarter, Microsoft’s new Xbox Series X and Series S consoles generated massive demand — so much so that retailers had a hard time keeping them stocked and Microsoft asked chipmaker AMD for help in making more available.

Revenue from Microsoft’s “more personal computing” segment, which Xbox sales fall under, increased 14% year-over-year to $15.1 billion.

That number includes the company’s quarterly gaming revenue, which surpassed $5 billion for the first time, according to Director of Investor Relations Kyle Vikstrom. It also includes 40% growth in Xbox content and services revenue — a major turnaround compared to the same period a year earlier, during which Xbox content and services revenue had decreased 11%.