Microsoft Earnings Live Blog: What Investors Need To Know

Big Tech earnings season starts this Tuesday, January 26, when Microsoft releases its fiscal second quarter report. Don't miss the Apple Maven's live blog coverage of the results and conference call.
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It is time! Big Tech companies begin to unveil the financial results of their holiday quarters of 2020. The first report will come from Redmond, Washington, home of tech giant Microsoft.

Microsoft's press release should cross the wires at around 4:05 p.m. EST. The earnings call is scheduled to start at 5:30 p.m. EST. It should last one hour, and will be broadcast on the company's investor relations page.

The Apple Maven's coverage starts at 4 p.m. EST. Between now and then, let's do a quick recap of what's to come for Microsoft, and what I will be paying close attention to today, after the closing bell.

(To skip the preview, scroll straight down to the "Live Coverage Starts Here!" section for real time insights, starting at 4 p.m. EST).

Previewing Microsoft's Fiscal Second Quarter

The Apple Maven has recently published its preview on Microsoft's earnings. Below are some of the key topics of conversation:

  • Cloud momentum: Microsoft’s cloud infrastructure business will be a top-of-mind subject of discussion, as usual. Azure is the company’s crown jewel, a business that has been growing at a dizzying 40%-plus pace for several years. Will the cloud adoption wave seen early in 2020 spill into the most recent quarter?
  • Comeback in PCs: the segment most likely to “wow” in the holiday quarter is personal computing. Preliminary numbers on industry-wide PC shipments in the fourth calendar quarter look impressive. Microsoft is likely to be one of the beneficiaries.
  • Another beat? Microsoft is known for promising little and delivering well beyond its outlook. The last time that the company failed to top consensus estimate on earnings was all the way back in early 2016. What will happen this time?

Live coverage starts here!

10:10 a.m. PST: We are on standby! Please check back soon, once the closing bell rings.

12:50 p.m. PST: Ladies and gentlemen, welcome to the Apple Maven's live coverage of Microsoft's fiscal second quarter earnings!

12:52 p.m. PST: It has been a fairly slow day in the equities market this Tuesday, January 26. The S&P 500 is currently flat, and so is the Nasdaq. Microsoft is up +1.3%, suggesting some optimism towards the company's soon-to-be-released earnings report.   

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12:55 p.m. PST: In just about 10-15 minutes, we will lay eyes on Microsoft's fiscal second quarter earnings release.

12:58 p.m. PST: Here are a couple of numbers to keep in mind, regarding Wall Street's expectations for Microsoft's quarter... revenues of $40.2 billion, pointing at 8.9% growth year-over year; and EPS of $1.64.

12:59 p.m. PST: The table below reflects the company's guidance for the holiday quarter, compared to the second fiscal period of last year.

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1:00 p.m. PST: This is it! The closing bell has rung! Expect the earnings report to drop any second now.

1:03 p.m. PST: The stock is on the move in after-hours trading already! Up +2.6%, but I do not see the earnings report yet. Stay tuned...

1:06 p.m. PST: Microsoft is up nearly +5% on a BIG all-around beat!

1:07 p.m. PST: Revenues of $43.1 billion vs. $40.4 billion guided and $40.2 billion consensus.

1:08 p.m. PST: EPS of $2.03 vs. $1.64 consensus.

1:09 p.m. PST: As the Apple Maven had anticipated, PC was a crucial driver of revenue upside to estimates and guidance. It was probably the most important segment during a quarter of strong PC sales across the whole industry and the long- awaited XBox refresh.

1:12 p.m. PST: Let's look at the segments... more personal computing revenues landed at $15.1 billion, which was about 13% above guidance.

1:13 p.m. PST: Intelligent cloud revenues came in at $14.6 billion, around 7% above guidance.

1:15 p.m. PST: Productivity and Business Processes sales reached $13.4 billion, or 4% above consensus.

1:17 p.m. PST: Here is something else that stands out to me... COGS of $14.1 billion was higher than consensus, but the "miss" can be easily justified by the huge revenue beat. What caught me by surprise was total opex of $11.0 billion that was about half a billion lower than the outlook.

1:19 p.m. PST: So it looks like Microsoft outperformed "bigly" on the top line while still keeping costs under check. Winning combo, leading to the massive EPS beat.

1:21 p.m. PST: Fun fact... the 39-cent EPS beat was the widest of the past five years at least, but probably ever!

1:23 p.m. PST: In after-hours, $MSFT is now up around +6.3%. For the whole day, the stock has moved up a total of +7.5%. Big day for Microsoft investors!

1:25 p.m. PST: Let's keep looking a bit closer at the results... as you probably know, Azure is Microsoft's crown jewel, growth engine and always a huge topic of conversation. Azure constant-currency growth this time reached 48%.

1:29 p.m. PST: Regarding Azure, check out the graph below. It shows the quarter-to-quarter acceleration or deceleration in the year-over-year growth rate, all in constant currency. The numbers represent percentage points.

1:30 p.m. PST: I would say that Azure growth is trending in the right direction, after a disappointing first calendar quarter of 2020 that was disrupted by the very early stages of the COVID-19 crisis.

1:33 p.m. PST: I really don't think, however, that the story today was about cloud infrastructure. The highlight of the quarter, in my view, was personal computing. Gaming revenues grew 51%! This is a huge improvement over the previous quarter's 22%. XBox hardware sales alone were up 86%!

1:35 p.m. PST: Fun fact... GameStop stock, ticker $GME, is up 35% in after-hours trading. Could strength in Microsoft gaming have anything to do with it?

1:38 p.m. PST: The double-whammy in the PC segment is that the closure of Microsoft stores helped to drive opex down 10% this quarter. As a result, revenue growth of 14% was "levered up", leading to a solid op margin increase of 25%, despite unfavorable gaming mix resulting in lower segment gross margins.

1:44 p.m. PST: Turning to Productivity and Business Processes, everything looks good, but nothing stands out to me. Strength is obvious in the usual suspects: Office and Dynamics 365, LinkedIn.

1:46 p.m. PST: In Intelligent Cloud, what excites me is the gain of scale leading to even larger operating income. This is expected of a capex-heavy business like cloud (i.e. lots of large fixed costs that get better "diluted" with the rapid increase in revenues).

1:49 p.m. PST: Here is what I mean... cloud segment revenues were up 23%, but operating income was up 43%!

1:51 p.m. PST: The very important question left to be answered is the outlook for fiscal third quarter. Microsoft will release it during its earnings call (which the Apple Maven will cover as well). The numbers usually come out a good 15 minutes into the call, which starts at 2:30 p.m. PST.

1:53 p.m. PST: I will leave you below with the current consensus expectation for fiscal third quarter. Use these numbers as the benchmark to compare Microsoft's guidance against:

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Source: Stock Rover

1:58 p.m. PST: The Apple Maven will take a quick break, as we await the start of Microsoft's earnings call and that very important fiscal third quarter guidance. Please check back in about half an hour. See you soon!!

2:25 p.m. PST: Time to start logging into the conference call! For those that want to do the same, here is the link.

2:26 p.m. PST: Quick update, $MSFT stock is now up only +3.3% in after-hours trading. This is about half as high as shares reached at one point, shortly after the release of the earnings report.

2:28 p.m. PST: Once again, keep in mind that the conference call will be important for the fiscal third quarter outlook. Ordinarily, Microsoft guides conservatively, so do not be surprised to see underwhelming numbers. Also keep tabs on the overall narrative around Microsoft's key businesses, including the commercial vertical that suffered more during the pandemic year.

2:33 p.m. PST: Nothing yet... do we have a delayed start, or is my connection bad? 

2:34 p.m. PST: Well, this is a good time to remind everyone to come back to thestreet.com/apple tomorrow for live coverage of Apple's earnings results!

2:36 p.m. PST: Still on standby. Technical difficulties (here or there) very likely.

2:40 p.m. PST: Looking for my head-scratching emoji... it is very rare for an earnings call to be delayed 10 minutes. I begin to suspect that the problem may be on my end. If so, I apologize for the inconvenience. I will keep trying.

2:43 p.m. PST: While I keep hitting my refresh button, let me quickly recap Microsoft's fiscal second quarter earnings report.

2:44 p.m. PST: Hold that thought... the technical difficulties were on their end (below), but now we are underway!

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2:45 p.m. PST: CEO Satya Nadella is on. He is reviewing some of the business highlights.

2:47 p.m. PST: He is discussing the adoption in Azure and security.

2:48 p.m. PST: Gaming has surpassed $5 billion in revenues for the first time ever. New XBox is the most successful launch ever. Microsoft reports console share gain (e.g. over PlayStation).

2:49 p.m. PST: Mr. Nadella likes the subscription model. And now he is starting to wrap up his prepared remarks.

2:49 p.m. PST: CFO Amy Hood has the floor. Wait for guidance within the next 5-10 minutes or so. $MSFT stock still up +3.3% in after-hours trading.

2:50 p.m. PST: The takeaway so far is that there have not been areas of weakness in Microsoft's quarter. Bookings are up strongly. Azure is looking good.

2:51 p.m. PST: Commercial cloud growth has accelerated. Margins were up slightly. I covered this topic earlier in the live blog.

2:52 p.m. PST: Opex lower than expected, driven by COVID-19 savings and store closures. This was a very important piece of the EPS beat, as I mentioned earlier.

2:54 p.m. PST: Office commercial and LinkedIn drove the upside in Productivity and Business Processes, according to the CFO. I'm looking for softness in the results or caution about where the businesses stand... but nothing meaningful so far.

2:56 p.m. PST: Intelligent Cloud results ahead of expectations. Azure up 50% (48% in constant currency) on improved customer spending. Not extraordinary, but certainly not bad whatsoever.

2:58 p.m. PST: More PC... killer quarter for this segment, stronger across all sub-businesses. Continued demand for Microsoft 365 and security. Surface looked fine as well, given the device's growth limitations.

2:59 p.m. PST: But within PC, gaming was the big story, as I mentioned earlier.

3:00 p.m. PST: Guidance coming up... ready?

3:07 p.m. PST: Great guidance, well ahead of consensus! I am preparing a table for you...

3:09 p.m. PST: Check out guidance table below. Everything within the light grey cells was provided by Microsoft's management team. I estimated the implied EPS of $1.75.

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3:10 p.m. PST: $40.8 billion in guided revenues compares to current estimate of $38.7 billion. Implied EPS of $1.75 compares to current consensus of only $1.58. Stock moved back up to nearly +5.0% in after-hours trading, vs. +3.3% at the start of the call.

3:11 p.m. PST: The narrative that came along the guidance was very upbeat. Nothing that I could call out as "weak" or "soft".

3:13 p.m. PST: Q&A is underway. Stock is now up more than +5.0% in after-hours trading, and about +6.5% for the whole day altogether. Great earnings day!

3:19 p.m. PST: Next question is about Teams connecting users across Microsoft's solutions. CEO Satya Nadella talks about the importance of integration within the enterprise, including front-line employees and IT departments.

3:20 p.m. PST: Next question is about expenses in a post-COVID environment. Should a full return to the office be expected? Satya talks about more flexibility, as the expectations at work have changed. There is no return to January 2020.

3:24 p.m. PST: Next question is about the business applications market, and what Microsoft is doing to capture a chunk of it. Satya Nadella talks about the coordinated effort to tackle this vertical through Microsoft's solutions portfolio.

3:25 p.m. PST: $MSFT seems to have found some stability around +4.5% in after-hours trading.

3:28 p.m. PST: Next question is about gaming and the opportunities within it. Satya Nadella talks about the early days of cloud and service subscription adoption.

3:28 p.m. PST: Last question is about cash flow growth. CFO Amy Hood says that it should increase in line with operating income, generally. She elaborates, saying that the strong business fundamentals have been supporting both.

3:30 p.m. PST: And that's a wrap! The numbers have been shared, the results have been discussed during the earnings call. What a great day it has been for Microsoft and its investors!

3:31 p.m. PST: Hope you have enjoyed our coverage this evening. And as a reminder, tomorrow is Apple's day! Visit thestreet.com/apple this Wednesday for full coverage of the Cupertino company's fiscal first quarter results.

3:32 p.m. PST: Stay safe, and see you all tomorrow!