Microsoft’s profits continue to climb

Microsoft announced record profits and sales Tuesday despite investor fears that the pandemic-fueled tech boom may be over.

The first of the largest tech companies to report earnings for the three months ending in December, Microsoft said it had $51.7 billion in sales, up 20% from a year earlier, and profit rose 21% to $18.8 billion. The company saw particularly strong growth in its cloud services while locking up long-term customer deals.

Although it beat Wall Street expectations, the company’s shares were down almost 5% in aftermarket trading but rebounded later in the day. The drop was most likely caused by a jittery stock market and some results that fell short for bullish investors.

In a call with investors, executives shared an optimistic outlook for the next quarter, sending Microsoft’s share price higher. Satya Nadella, Microsoft’s CEO, said the demand for services was still strong.

“Coming out of the pandemic we are seeing actually a lot of constraints in the economy, and the only resources that can help drive productivity while keeping costs down is digital tech,” he said.

Microsoft had $125 billion in cash, almost $70 billion of which it hopes to spend on buying video game powerhouse Activision in a deal announced this month. Bank of America analysts called the purchase a “savvy maneuver” and a “strategic and financial positive, which can accelerate Microsoft’s gaming business across numerous platforms.”

Sales of Microsoft’s cloud offerings to commercial customers, which includes Office 365 subscriptions and Azure, its cloud computing platform, grew 32% to $22.1 billion. Revenue is poised to grow further as price increases for Office 365, which includes Word and the Teams communications app, go into effect in March. The price increases could produce $5 billion in extra revenue this year, according to Wedbush Securities.

Azure is the second-largest cloud platform, after Amazon Web Services. It is part of a fundamental shift in how companies are moving more of their business online. Azure grew 46%, reflecting how customers across industries are signing larger, longer deals.

Brett Iversen, head of Microsoft’s investor relations, said that despite turmoil in the stock market, the company was focused on long-term opportunities so it could cut “through the shorter-term, external noise that we don’t control as much.”

Iversen said Microsoft’s Windows business was particularly strong, with sales up 25% as corporate customers bought new computers for their employees.

Despite chip shortages that limited the supply of the new Xbox console during the holiday season, the company’s gaming business grew 8%, part of its personal computing segment, which grew 15% to $17.5 billion.

The so-called Great Resignation among workers also boosted LinkedIn, the professional social network, which saw revenue increase 37%

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