Microsoft Stock Leaps As Cloud Strength Drives Q3 Earnings Beat, Offsets Muted Azure Gains

Microsoft Cloud revenues were up 22% from last year over the third quarter, topping Street forecasts and driving a solid earnings beat for the tech giant.

Microsoft  (MSFT) - Get Free Report posted stronger-than-expected third quarter earnings late Tuesday, thanks in part to ongoing strength in its cloud division that offset slowing revenues for its Azure product, sending shares sharply higher in after-hours trading.

Microsoft said revenues for Azure, its flagship cloud division, rose 27% from last year over the three months ending in March, missing Street forecasts and slowing from earlier gains in the mid to high 40-percent range as companies continue to pull back on digital infrastructure spending.

Overall group revenues, however, rose 7.2% to $52.9 billion for Microsoft's fiscal second quarter, coming in well ahead of analysts' estimates of a $49.36 billion tally. Intelligent Cloud revenues were pegged at $22.08 billion, against ahead of the Street's $21.26 billion forecast and up 22% from the same period last year.

Microsoft's adjusted earnings rose 10.4% from last year to $2.27 per share, just ahead of the Street consensus forecast of $2.23 per share. Net income rose 9% to $18.3 billion.

“The world's most advanced AI models are coming together with the world's most universal user interface - natural language - to create a new era of computing,” said CEO Satya Nadella. “Across the Microsoft Cloud, we are the platform of choice to help customers get the most value out of their digital spend and innovate for this next generation of AI.”

Microsoft shares were marked 4.6% higher in after-hours trading immediately following the earnings release to indicate a Wednesday opening bell price of $286.10 each.

Productivity and business division revenues, which includes Office 365, were largely flat to last year at $17 billion, Microsoft said, while more Personal Computing revenues, which includes Windows, were pegged at $13.26 billion. 

“Focused execution by our sales teams and partners in this dynamic environment resulted in Microsoft Cloud revenue of $28.5 billion, up 22% (up 25% in constant currency) year-over-year,” said CFO Amy Hood.