Microsoft reported relatively strong numbers for the March quarter, but it isn’t immune to the pandemic’s fallout.
Photo: gerard julien/Agence France-Presse/Getty ImagesWill Microsoft prove to be resilient in the global pandemic and its aftermath? The answer suggested by the software titan’s latest results is: Yes—but it’s complicated.
Like Facebook and Google parent Alphabet Inc., Microsoft reported relatively strong numbers for the March quarter. Revenue for the fiscal third quarter rose 15% to $35 billion, beating Wall Street’s projected 10% rise. Operating income jumped 25% to nearly $13 billion, keeping overall margins on pace with prior quarters. Microsoft’s share price rose 2% following the results Wednesday.
Unlike Facebook and Google, Microsoft’s results didn’t mask a sharp deterioration in its core business near the end of the period. In fact, the coronavirus pandemic proved helpful to the company in many ways as a surge of workers sent home ended up buying new Windows laptops and jumping on chats and video calls through the company’s Teams platform—all while their homebound children logged on to Xbox consoles to play “Minecraft.” Teams’ daily active user count has surged to 75 million compared with 20 million reported by the company three months ago. The company also noted that Xbox Live now has 90 million active users, up from 63 million in the same period last year.
Such diversification is a selling point for Microsoft in a world facing the possibility of a deep recession, but it doesn’t make the company immune to the pandemic’s fallout. Even its powerful cloud and software businesses are facing challenges in signing large deals as much of the corporate world has had to slash budgets. The company projected June-quarter revenue below Wall Street’s forecasts for two of its three business segments on Wednesday, with Chief Financial Officer Amy Hood citing changes to “sales dynamics” as part of the justification.
Nor is Microsoft immune to the global advertising slump that will hit Google and Facebook hard this quarter. This is particularly true for LinkedIn, which Microsoft acquired in 2016 for more than $26 billion—its largest deal ever. The professional social network makes most of its money through ads and fees paid by job recruiters. Its prospects have dimmed as U.S. unemployment numbers alone have shot up by more than 26 million in the past five weeks.
Investors have sent Microsoft’s share price up 13% so far this year—the second-best performance among big techs next to Amazon.com. That has also vaulted the company’s market value to $1.3 trillion—back above Apple Inc. And the gains look largely justified, as the company’s business diversity has given it strong exposure to the right areas while limiting damage from others. But even safe harbors can experience a little rain.
Write to Dan Gallagher at dan.gallagher@wsj.com
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Microsoft Offers Some Shelter From the Storm - The Wall Street Journal
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