Why Microsoft shares dropped 2% amid rising earnings

The world’s software giant, Microsoft saw its shares drop about 1.66% of its value, immediately after the tech juggernaut gave unimpressive revenue guidance. That said, Microsoft printed impressive first-quarter earnings which exceeded estimates.

What you should know

  • Microsoft’s stock price is falling on bearish comments coming from the company after it released impressive earning results,  stating that its revenue guidance was weak and further hinted that it continued to face pressure from lower one-off sales of software due to the COVID-19 pandemic.
  • Microsoft also revealed that operating profit margins were more likely to be affected in H1 2020 year. It increased its investments in its present cash cow business (cloud computing) while seeing a deep drop off in high-margin sales on its Windows operating system for Personal computers.
  • It’s also important to note that the stock bears are hitting hard on the trillion-dollar market capitalized company on the bias that Microsoft further disclosed that for the final three months of 2020, its expected revenue would range between $39.6billion to $40.4billion; or a growth of 8% at the midpoint of the range, compared to global market forecasts of $40.4billion.

Here are some highlights of its most recent earnings;

  • Revenue was $37.2 billion and increased by 12%.
  • Operating income was $15.9 billion and increased by 25%.
  • Net income was $13.9 billion and increased by 30%.
  • Diluted earnings per share were $1.82 and increased by 32%.

Revenue in Productivity and Business Processes was $12.3 billion and increased 11%, with the following business highlights:

  • Office Commercial products and cloud services revenue increased 9%, driven by Office 365 Commercial revenue growth of 21% (up 20% in constant currency).
  • Office Consumer products and cloud services revenue increased by 13% and Microsoft 365 Consumer subscribers increased to 45.3 million.
  • LinkedIn revenue increased by 16%.
  • Dynamics products and cloud services revenue increased 19% (up 18% in constant currency), driven by Dynamics 365 revenue growth of 38% (up 37% in constant currency).

What they are saying

However, in its recent earnings call, Microsoft CEO, Satya Nadella, gave valuable insights into why Microsoft is heading in the right direction, with significant investments in its cloud businesses.

The next decade of economic performance for every business will be defined by the speed of their digital transformation.

“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.”

The C.F.O of Microsoft also buttressed the leading software maker’s long term investment.

“Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue-generating $15.2 billion, up 31% year over year.

“We continue to invest against the significant opportunity ahead of us to drive long-term growth,” said Amy Hood, Executive Vice President and Chief Financial Officer of Microsoft.


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