Where next for Microsoft's share price, post-earnings?

Microsoft [MSFT] was first past the post yesterday for Big Tech companies releasing their latest earnings reports. The Washington-based technology firm was the subject of heavy focus following the announcement of its plans to make Activision Blizzard [ATVI] its most expensive acquisition to date last week. 

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Investors were eager to see the underlying financials for a company that was able to agree in principle to a whopping $70 billion all-cash deal. Many on Wall Street were also hoping for a solid earnings report from a respected name to quell the turbulence surrounding the wider market lately.

Microsoft’s earnings

Microsoft reported adjusted earnings per share (EPS) of $2.48 against analyst expectations of $2.31, on revenue of $51.73 billion versus an anticipated $50.88 billion. This represents a growth of 20% year-over-year (YoY) for revenue, extending a streak of earnings beats that stretches back over a year now. 

Much of this growth was driven by the company’s ever-expanding cloud services arm. As the world continues to undergo a shift towards remote-working, Microsoft’s Azure offering has spearheaded a segment that saw revenue growth of over 46% for the quarter.

Microsoft Teams and LinkedIn both also benefitted from this global reimagining of working life, with the former surpassing 270 million monthly active users for the first time, while the latter increased revenue by 37%.

And as for gaming, investors will be extremely pleased to hear that Microsoft reported record highs for both revenue and engagement throughout the quarter. The company will now hope to capitalize on this growth through its impending acquisition of Activision.

Microsoft’s 2022 outlook

Despite the better than expected earnings report, shares in the company declined initially in extended trading. This was soon remedied, however, as Microsoft issued a stellar sales forecast for the rest of the year that exceeded analyst expectations. 

The firm expects revenue for its fiscal third quarter to come in between $48.5 billion and $49.3 billion, surpassing the consensus figure from analysts of $48.23 billion. Chief Financial Officer Amy Hood stated that the company expects its full-year operating margins to now widen slightly.

Is Microsoft a buy?

Microsoft continues to show exceptional revenue growth across a wide variety of its services. The consistent growth of its cloud sector is of particular note. The company already holds the second-largest share of the cloud market behind Amazon and establishing an even stronger foothold in an industry that is expected to be worth over $947 billion by 2026 will only serve to encourage investors.

A clear focus on the gaming industry also primes the firm for future growth. Should the proposed deal to purchase Activision escape being shut down by regulatory authorities, Microsoft is set to become the third-largest gaming company in the world by revenue. Tencent [HK:700] and Sony [JPX:6758] are well and truly in the company’s sights, and its expansion in this space could bring about fantastic growth.

Overall, Microsoft remains a mega-cap company with solid fundamentals. Despite being down just over 10% year-to-date, the business is still a quality anchor stock within any portfolio. A resilient business model, continued innovation, and an exceptionally valuable brand keeps Microsoft as a buy for the foreseeable future and beyond.

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