Written by: Sophie Lund-Yates | Hargreaves Lansdown
Second quarter revenue rose 20% to $51.7bn, slightly behind market expectations. That meant that despite a 17.5% increase in Research and Development costs, plus other operating cost rises, operating profit rose 24% to $22.2bn.
Revenue in the Productivity & Business Processes division reached $15.9bn and rose 19%, reflecting growth across products including Office 365 and LinkedIn. Operating profit rose to $7.7bn, from $6.2bn.
Intelligent Cloud operating profit rose over 26% to reach $8.2bn, as demand for Azure and other cloud services saw revenue rise 46%, helping total divisional revenue climb 26% to $18.3bn.
The More Personal Computing business was helped by search and news advertising revenue - excluding traffic acquisition costs – where revenue rose 32%. Overall revenue rose 15% to $17.5bn, while operating profits rose to $6.4bn from $5.2bn.
Microsoft generated free cash flow of $8.6bn, compared to $8.3bn at the start of 2022. There was net cash of $72.1bn as at the 31 December.
The shares fell 3.7% in after-hours trading.
Almost $52bn in quarterly revenues is a number that’s simply hard to wrap your head around, but such is Microsoft’s importance to workplaces, homes and schools across the globe. Microsoft’s core Office software, and now cloud computing services, are to IT what Facebook has become for so many – indispensable. The stellar news for Microsoft is that where revenues lead, profits will follow, thanks to the incredibly inexpensive nature of running a software business.
Although as we all know, Microsoft isn’t afraid to put its hand in its pockets when necessary. The pending acquisition of Activision Blizzard would allow Microsoft to beef up its existing gaming products, especially in the lucrative subscription-based Game Pass. I tend to think of Microsoft as the nice guy of tech, but snatching up some of the world’s most valuable intellectual property in this way proves it's far more than just a pretty face. It’s refreshing to see a tech giant putting their enormous cash hoards to some tangible use. Luckily for Microsoft, Xbox revenues seem to be holding their own – padding out the nest for Call of Duty to land.
Microsoft hasn’t been immune to the wider tech sell off sparked by rising inflation and expectations for interest rate hikes. General tech concerns are likely a factor behind the less than enthusiastic share price move, as well as the market’s sky-high expectations for Microsoft. There is little the group can do about wider economic rumblings, but we may not have seen the last of the damage to the share price and all ears are firmly honed-in on what the Fed has to say next.