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Author: Alan LittleDate: 2020-10-29

Azure drives Q3 beats for Microsoft (MSFT) but shares dip 4%

Microsoft (MSFT) posted a strong fiscal Q1 report on Wednesday, but weaker-than-expected guidance sent shares lower amid a broader stock sell-off.

Microsoft (MSFT) shares dipped 3.85% in Wednesday’s trading even though the tech giant’s Q3 report handily beat Wall Street expectations on revenue and earnings as its cloud-based division Azure continues to drive growth.

Before markets opened in midweek, Microsoft posted $1.82 earnings per share and $37.2bn revenue for the three-month period ending 30th September versus the $1.54 and $35.7bn FactSet consensus.

Microsoft’s benchmark cloud computing service Azure had a stellar quarter as revenues soared 48%, while its commercial cloud division brought in $15.2bn.

Operating margins were also strong, rising to 43% as expenses decreased 3% due to savings related to COVID-19.

CEO Satya Nadella said that the last months had showcased the company’s ability to be resilient and support new ways of doing business.

He noted: “Even the smallest of businesses need to be able to deploy a solution quickly for some workflow that allows them, say, for example, to do curbside pickup if you’re a retailer and a small business.”

While the report was impressive, Microsoft did underwhelm with its guidance for the current quarter.

The Seattle-based company expects revenue to fall between $39.5bn and $40.4bn for its fiscal Q2, which fell short of the $40.5bn FactSet consensus.

Investors had been expecting a bit more with the launch of next-generation Xbox gaming consoles in November.

BMO Capital Markets saw enough to continue with an outperforming rating though.

Analyst Keith Bachman, who also offered a $245 price target, said that Microsoft should be viewed as a “core software holding” as it continues to deliver steady growth.

Microsoft shares struggled to gain traction amid a wider sell-off on Wall Street on Wednesday.

MSFT was trading 4.26% lower at $204.23 at around 1:10pm ET on the Nasdaq.

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