Microsoft tops $60 billion in annual earnings for the first time to cap another record-breaking year

Microsoft Corp. finished yet another record-breaking year with more than $60 billion in profit and $165 billion in sales, showing why it has become only the second $2 trillion company in U.S. stock market history.

Microsoft MSFT, -0.87% on Tuesday reported fiscal fourth-quarter earnings of $16.46 billion, or $2.17 a share, up from $1.46 a share a year ago. The maker of Windows and other software products divulged revenue of $46.15 billion, a quarterly record and up from $38.03 billion in the year-ago quarter.

“Our results show that when we execute well and meet customers’ needs in differentiated ways in large and growing markets, we generate growth, as we’ve seen in our commercial cloud – and in new franchises we’ve built, including gaming, security, and LinkedIn, all of which surpassed $10 billion in annual revenue over the past three years,” Chief Executive Satya Nadella said in a statement.

Analysts on average had expected earnings of $1.92 a share on sales of $44.22 billion, according to FactSet. Microsoft shares fell 3% in after-hours trading following the release of the results, after falling 0.9% to $286.54 in regular trading on a tough day for tech stocks.

For the full year, Microsoft totaled $61.27 billion in profit on sales of $168.09 billion, both easily exceeding the records established in its previous fiscal year. The gains exceeded expectations at the beginning of the year, as Microsoft’s cloud-computing and -software offerings found needy customers in employers scrambling to move to a work-from-home setup due to the COVID-19 pandemic and expected to continue to shift to online options.

“It is abundantly clear that Microsoft is well-positioned to continue to benefit from a number of secular trends powering IT spending today, including the greater focus on digital transformation and the accelerating shift to the cloud,” Evercore ISI software analysts wrote earlier this month in a preview of the sector.

See also: 10 software stocks with sales expected to increase up to 174% through 2023

All of Microsoft’s segments produced better growth than analysts expected in the final three months of the company’s fiscal year, which included the launch of a new Xbox and a new version of Windows. “Productivity and business processes,” which comprises most of Microsoft’s cloud-software offerings, grew to $14.69 billion in sales from $11.75 billion a year ago, topping analysts’ average expectations of $13.93 billion. “More Personal Computing,” the traditional PC business, grew to $14.09 billion from $12.91 billion, beating the average analyst forecast of $13.78 billion.

The biggest segment for Microsoft was “Intelligent Cloud,” which wraps in its Azure cloud-computing offering with sales of servers and other equipment needed for a hybrid-cloud setup. Microsoft reported record quarterly sales of $17.38 billion in that segment, up from $13.37 billion a year ago and beating the average analyst estimate of $16.39 billion. The company said that Azure sales grew by 51%, easily topping the average analyst estimate of 44.7%; unlike cloud rivals Amazon.com Inc. AMZN, -1.98% and Alphabet Inc. GOOGL, -1.59% GOOG, -2.04%, Microsoft does not break out raw numbers for its cloud-computing offering.

Analysts expect growth to continue in Microsoft’s new fiscal year, predicting ahead of the report that profit will grow to more than $63 billion and sales will increase to $186.74 billion in the 2022 fiscal year.

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“As we move into FY22, we think Microsoft’s fundamentals are likely as strong at any point in recent history,” Rosenblatt Securities analyst John McPeake, who has a buy rating and $333 price target on the stock, wrote in a note ahead of the numbers. “We think Azure continues to take share, demand for PCs remains robust,
and Office, Teams, and Dynamics likely continue to grow in the double digits.”

Read: Microsoft’s shadowy presence in antitrust push is angering the rest of Big Tech

Microsoft did not share a forecast in its release, as executives typically share their guidance in the company’s conference call, which is scheduled for 5:30 p.m. Eastern and is typically a secondary catalyst for the stock in the extended session after earnings are released.

For investors who trust Microsoft will continue to grow, the question is if the share price will follow. Microsoft has already reached a $2 trillion market cap this year thanks to 2021 growth of 28.6%, easily outpacing the 17.7% growth of the S&P 500 index SPX, -0.47% and 14.8% increase of the Dow Jones Industrial Average DJIA, -0.24%, which counts Microsoft as a component.

For Evercore ISI’s software analysts, the answer is clear: Just keep on posting huge growth numbers, and the stock will respond.

“The easy answer to how Microsoft continues to outperform the S&P is that Microsoft continues to deliver double-digit top AND bottom line growth,” wrote the analysts, who have an outperform rating and $300 price target on Microsoft shares.

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