Microsoft Reports Better-Than-Expected 3Q Results; Shares Drop 3% After-Hours

Microsoft Corp. (MSFT) reported strong fiscal third-quarter results, topping analysts’ expectations and fueled by a 33% rise in commercial cloud revenue. However, shares of the tech giant dipped 2.6% in Tuesday’s extended trading session in anticipation of a stronger revenue beat.

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The company reported 3Q adjusted earnings of $1.95 per share, up 39% year-over-year, and beating Street estimates of $1.78 per share. Revenue advanced 19% to $41.7 billion and surpassed analysts’ expectations of $41.03 billion.

Microsoft reported Productivity and Business Processes revenue of $13.6 billion in the quarter, up 15% year-over-year. Intelligent Cloud revenue came in at $15.1 billion, up 23%, while revenue at More Personal Computing surged 19% to $13 billion. Notably, Azure revenue growth was 50%.

Microsoft CEO Satya Nadella commented, “Over a year into the pandemic, digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning. We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform.”

For the fiscal fourth-quarter 2021, the company has provided segmental revenue forecasts. The Productivity and Business Processes unit is expected to report revenue in the range of $13.8-$14.05 billion, while Intelligent Cloud revenue is forecast to land between $16.2 billion and $16.45 billion. Additionally, More Personal Computing revenue is forecast to come in between $13.6 billion and $14 billion. (See Microsoft stock analysis on TipRanks)

Following the fiscal 3Q results, Wedbush analyst Daniel Ives reiterated a Buy rating and a price target of $300 (14.5% upside potential) on the stock.

Ives said, “In a nutshell, these were strong numbers that will be another feather in the cap for MSFT with the stock selling off after hours in knee jerk fashion as the Street was hoping for a bigger top-line beat. Looking at the numbers, cloud remains the core of the bull story going forward.”

“From a valuation basis, even if we take a 10%+ haircut to the cloud and enterprise growth drivers, we are still looking at what we value as a $1 trillion valuation cloud franchise for Redmond,” the analyst added.

Shares have rallied 54.3% over the past year, while Wall Street analysts are still bullish about the stock. The Strong Buy consensus rating boasts 18 unanimous Buys. Looking ahead, the average analyst price target stands at $294.53, putting the upside potential at 12.4% over the next 12 months.

Furthermore, Microsoft scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.