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Microsoft's Earnings Beat Powered by Demand for Cloud Software

Microsoft posts better-than-expected fiscal fourth-quarter earnings on demand for its cloud-based software.

Microsoft  (MSFT) - Get Free Report traded lower in premarket trading Thursday even after posting better-than-expected fiscal fourth-quarter earnings on demand for its cloud-based software.

The Redmond, Washington-company reported earnings of $1.46 a share on a 13% increase in revenue to $38 billion. Analysts expected Microsoft to report earnings of $1.37 a share on revenue of $36.5 billion.

"The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger. We are the only company with an integrated, modern technology stack -- powered by cloud and AI and underpinned by security and compliance -- to help every organization transform and reimagine how they meet customer needs," said CEO Satya Nadella said in a press release.

The company's cloud segment saw a 17% jump in fourth-quarter revenue to $13.4 billion, while its personal computing segment saw revenue jump 14% to $12.9 billion.

The company's Azure cloud business saw revenue rise 47%, lower than the 59% growth recorded in the fiscal third quarter. 

"Our commercial cloud surpassed $50 billion in annual revenue for the first time this year. And this quarter our commercial bookings were better than expected, growing 12% year over year,” said Amy Hood, executive vice president and chief financial officer. "As we drive growth across the company, we remain committed to investing in long-term strategic opportunities.”

Hood told analysts on a conference call that revenue in Microsoft's Intelligent Cloud division in the fiscal first quarter would come in at $12.55 billion to $12.8 billion, vs. Wall Street estimates of $12.6 billion.

Gross margins for Microsoft in the fourth quarter were 68%, down two points from a year earlier, and operating margin slipped to 35%.

Margin weakness is just a "near-term hiccup," said Jefferies analyst Brent Thill. He called Microsoft one of the "best pillars of software."

“Microsoft continues to benefit from the accelerated digitization trend happening as a result of the pandemic, and while others may choose to nitpick, we see a world where the majority of the workforce is required to operate remotely and Microsoft represents the backbone of productivity,” said Jim Cramer and the Action Alerts PLUS team, which holds Microsoft in its portfolio.

“While the majority of the workforce may ultimately return to the office, we believe the cat is out of the bag, that the remote work dynamic is here to stay in some form or another, and as a result, that Microsoft's position in the business world and our daily lives in general, continues to strengthen with each passing day,” the AAP team added.

The stock fell 1.75% to $208.04 in premarket trading.