Microsoft Shares Jump as Xbox, Cloud Sales Boost Q2 Profits

Microsoft said COVID-19 had a 'minimal' negative impact on second quarter revenues, but stay-at-home orders helped boost cloud sales, and gaming subscribers, over its fiscal second quarter.

Microsoft Corp  (MSFT) - Get Report shares are set to open at a two-month high Thursday after the world's most valuable company saw a boost in sales from stay-at-home orders amid the coronavirus pandemic that helped it post Street-beating quarterly profits. 

Microsoft said diluted earnings for the three months ending in March, the company's fiscal second quarter, came in at $1.40 per share, a 22.8% increase from the same period last year and firmly ahead of the Street consensus forecast of $1.26 per share. Overall group revenues, Microsoft said, rose 15% from last year to $35 billion, topping analysts' estimates of a $33.6 billion tally.

Commercial cloud revenues, which combine Microsoft's Azure with other cloud-based software offerings, rose 39% to $13.3 billion, the company said, while working-from-home orders boosted software upgrades and added to engagement time on its XBox gaming platform, which saw subscribers double from last year. Intelligent cloud revenues rose 27% to 12.28 billion. 

"Stepping back from the quarter and reflecting more broadly on the next decade, the defining secular trend will be the increasing rate of digitization of people, places and things," CEO Satya Nadella told investors on a conference call late Wednesday. "This malleable power of software will drive productivity growth across all industries, leading to more inclusive economic growth far beyond the domains of consumer tech today. Tech spend as a percentage of GDP is projected to double over the next decade."

"We are expanding our opportunity across all our businesses. Along with this opportunity, we recognize the responsibility we have to ensure the technology we build is always inclusive, trusted and is creating more sustainable work," he added. "Our customers see this urgent need and are looking to us in partnership with them to take action." 

Microsoft shares were marked 2.6% higher in pre-market trading Thursday to indicate an opening bell price of $182.05 each, the highest since February 21 and a move that would extend the stock's year-to-date gain to around 15.5%.. 

"Given current economic weakness and emphasis on (working-from-home), we believe that Microsoft, along with ServiceNow results, indicates that enterprise spend is being prioritized in areas that include cloud, workflow, and certain areas of security," said BMO Capital Markets analyst Keith Bachman, who boosted his price target on the stock by $12, to $212 per share, with an outperform rating.

"For Microsoft, we think this has and will continue to benefit Azure and Office, including Teams and security. Though not within enterprise spend, gaming is also benefiting. While likely conservative, we think Microsoft’s guide suggests areas of diminished demand."