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Microsoft: Giant delivers robust growth

Microsoft delivered robust Q2FY22 numbers, yet again – revenue grew 20% YoY to USD51.7bn, well ahead of Street’s estimate of USD50.9bn. Operating income grew 24% YoY to USD22.2bn. EPS at USD2.48 also surpassed Street’s expectation of USD2.3 per share.

The company’s CEO stated that since tech as a percentage of global GDP continues to increase, Microsoft is innovating and investing across diverse and growing markets. It is very well positioned to catch and ride the next wave of internet. Cloud continued to gain strength with Azure growing 46% YoY. Revenue guidance of USD48.5–49.3bn for Q3FY22 is in line with consensus forecast. Microsoft is not rated.

Strong double-digit growth across business segments

Demand for Azure and other cloud services remained robust with Intelligent’ s cloud segment’s revenue growing 26% YoY to USD18.3bn, with 46% YoY growth in Azure driven by large, long-term Azure contracts and continued strength in consumptionbased services. More Personal Computing revenue increased 15% YoY to USD17.5bn with better-than-expected performance in Windows OEM, Surface, and Search and news advertising. Windows OEM revenue increased 25% driven by the strong PC market, particularly in commercial segment. Productivity and business processes revenue grew 19% YoY to USD15.9bn driven by Office 365 and LinkedIn.

Solid guidance

Management has guided for revenue of USD48.5-49.3bn for the third quarter. The mid-point of the range – USD48.9bn – is in line with consensus forecast. Management expects healthy double-digit revenue and operating income growth for FY22. It expects overall COGS of USD15.5–15.7bn and operating expense of USD13.4–13.5bn in Q3FY22 while the effective tax rate is expected to be approximately 18%. Microsoft returned USD10.9bn to shareholders in the form of share repurchases and dividends in Q2FY22. The company recently acquired Activision Blizzard to form a dedicated gaming division.

Outlook: Robust cloud growth a boon for IT companies

Microsoft has delivered a strong set of numbers yet again. Its CEO stated Digital technology is the most malleable resource at the world’s disposal to overcome constraints and reimagine everyday work and life. He highlighted there is a structural shift in PC demand. Management expects its differentiated market position, customer demand for high-value hybrid and cloud offerings, and consistent execution to drive strong growth in the future.

As we have been highlighting since Jun-20, the current pandemic has accelerated the demand for cloud, digital adoption and transformation of the core. We believe heightened demand for cloud migration and implementation will boost revenues of Indian IT services companies. Microsoft is not rated.

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