Earnings Results

Microsoft Corp. blew away earnings expectations Tuesday as it surpassed $40 billion in sales and $15 billion in profit in a quarter for the first time, sending shares up from their record closing price.

Microsoft MSFT, +1.22% has found strong gains during the COVID-19 pandemic, as companies rely on cloud computing from Azure and cloud-software offerings like Teams to keep employees connected while they work from home. Sales in the cloud and personal-computer segments led the way in Tuesday’s report, easily beating expectations as demand for PCs and remote computing power continued through the end of 2020.

In the holiday quarter, Microsoft reported earnings of $15.46 billion, or $2.03 a share, on sales of $43.1 billion, strong growth from the same quarter a year ago, when Microsoft reported earnings of $1.51 a share on sales of $36.9 billion. Analysts on average expected Microsoft to report fiscal second-quarter earnings of $1.64 a share on revenue of $40.23 billion.

Shares jumped roughly 5% in after-hours trading following the announcement, after the stock established a new all-time closing high of $232.33 in the regular session, topping a previous record from Sept. 2, 2020. Microsoft stock has increased 40.8% in the past 12 months, as the Dow Jones Industrial Average DJIA, -0.07% — which counts Microsoft as a component — has increased 6.8%.

The product that has most excited investors and analysts in recent years has been Azure, Microsoft’s cloud-computing rival to Amazon.com Inc.’s AMZN, +0.98% Amazon Web Services, or AWS. The company said Tuesday that Azure grew 50% in the second quarter — Microsoft does not provide actual financial performance of Azure even as rivals such as Amazon and Alphabet Inc. GOOGL, +0.72% GOOG, +0.94% break out the performance of their cloud-computing offerings — and that sales in its “intelligent cloud” segment grew to $14.6 billion from $11.87 billion a year ago. Analysts on average expected cloud revenue of $13.77 billion, according to FactSet.

As personal-computer sales spiked due to work-from-home needs and Microsoft began selling new Xbox consoles in the holiday season, sales in Microsoft’s “more personal computing” segment grew to $15.12 billion from $13.21 billion in the same quarter a year ago. Analysts on average expected segment sales of $13.47 billion. Microsoft said that revenue from Xbox grew 40% in the quarter, while sales of its Surface lines of PCs increased 3%.

Microsoft’s “productivity and business services” division, which includes cloud software assets such as its Office suite as well as LinkedIn and other properties, reported revenue of $13.35 billion, up from $11.83 billion a year ago. Analysts on average expected sales of $12.89 billion.

BlackBerry stock gets a downgrade at RBC

RBC Capital Markets analyst Paul Treiber downgraded shares of BlackBerry Ltd. undefined to underperform from sector perform Tuesday, citing a big recent rally for the shares amid little change in the prospects for the company's unified endpoint management (UEM) or Cylance security businesses. "BlackBerry is now trading at multi-year highs and above peers," Treiber wrote, following a 207% rally since the end of November versus a 6% rise for the S&P 500 undefined over that span. He said that BlackBerry reported its fiscal third-quarter results in December, showing a drop in dollar-based net revenue retention. Treiber also wrote that the "probability of an unannounced IP licensing gain appears low." BlackBerry sold 90 patents to Huawei and struck a patent-licensing settlement with Facebook Inc. undefined, which Treiber called "positive" events, though he argued that "the magnitude of the potential one-time gain is likely to be smaller than the ~$7B increase in the company's market cap." A Dec. 15 court filing suggests that the Facebook arrangement was reached prior to the third quarter and might already be reflected in the company's outlook, he said. Treiber kept his $7.50 price target intact on BlackBerry shares, which closed Monday at $18.03 after a 28% rally. The stock is up another 11% in premarket trading Tuesday.