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Microsoft down after-hours following Q3 earnings

Microsoft reported revenue of $41.71B, outperforming an estimated revenue $41.05B. D.A. Davidson Managing Director Rishi Jaluria joined Yahoo Finance’s Jared Blikre to break down the key metrics of Microsoft’s quarterly earnings.

Video Transcript

ADAM SHAPIRO: Satya Nadella has his head in the clouds. And that's a good thing, Jared Blikre. Microsoft earnings are out.

JARED BLIKRE: Well, I got my feet on the ground. And let me just give you the numbers. And they're good, but not great. And I'll tell you why the stock is down about 3% or 4% in afterhours trading. We're going to manage some slight beats on revenue. And I think the fact that it's not blowout may be weighing on the stock a little bit. Revenue for the third quarter came in at 41.71 billion. The estimate was for a little bit lower, 41.05 billion. And there are three segments-- productivity and business process revenue. That came in at 13.55 billion, up 15% year over year, just slightly higher than the estimate of 13.51 billion.

Intelligent cloud, that's one that we're all focused on here. 15.12 billion, up 23%, just a little bit higher than 14.94 billion. Finally, personal computing coming in at 13.04 billion. That's up 19% year over year and slightly higher than the estimate of 12.61 billion. EPS came in at $1.03, higher than $1.78 that the Street was expecting. Operating income of $17.05 billion, materially higher than 15.94 billion. And then finally capital expenditures, 5.09 billion. Those were up 35% year over year. And the estimate was for 4.72 billion. So, spending a little bit more money than the Street expected and not really having those blowout numbers that we just saw from Alphabet. Looking at the stock, it's down about 3%, 3 and 1/2% in afterhours trading.

ADAM SHAPIRO: Jared, thank you. Rishi Jaluria is DA Davidson managing director, senior research analyst. He's going to help us break down what this means for Microsoft. I think many of us can remember when this stock did nothing for years under Mr. Ballmer. And, you know, Mr. Nadella is taking a punishing today. But how can you ignore the intelligent cloud revenue of 15.1 billion? Shouldn't this stock perhaps be a little bit kinder right now?

RISHI JALURIA: Yeah, and thank you so much for having me. Always a pleasure to be here. Look, my take is pretty similar to yours. I thought this was a pretty solid quarter across the board. But as it is in stock land, the question is always, what have you done for me lately? And the fact is, as strong as the numbers are, there's always worries with the stock trading at all-time highs and all the tailwinds that we saw during the pandemic of what are things going to look like post-pandemic, right?

And you saw Azure growth was strong, but it did slightly decelerate from last quarter. You saw a couple other areas where maybe results were strong, but just not strong enough, you know, to be such a blowout quarter for the stock to move up in the aftermarket. But look, I'm in agreement with you. I think on results like these, I'm surprised to see the stock down.

SEANA SMITH: Hey, Rishi, I think it might be that 23% year over year growth. I was reading a number of analysts were expecting something to come in much higher here. When we talk about the June number, though, looking forward ahead to this current quarter, when we get those results, the comps tend to get, or they will get, much easier at that point. Are you expecting to see a re-acceleration on Azure at that point?

RISHI JALURIA: Yeah, look, I think absolutely. And part of it is exactly like you said, the compares. But I think also, more importantly, you had a massive acceleration of the cloud I think early on in the pandemic. And I think we're actually going to get a second re-acceleration of workloads moving to the cloud with offices reopening, right? That companies that didn't get to do it at the very beginning can now say, all right, I can think a little bit more strategically. I'm out of triage mode. Let me think about how to really modernize my infrastructure and modernize my technology. And so, I actually think both of those can work in Azure's favor.

ADAM SHAPIRO: You know, blame the newspapers because they were jumping the cart here. They were putting the horse before the cart. We're talking about the market cap going over $2 trillion. So, not today. But as you just said, as we head back to the office and we all use Microsoft products-- even if you've got an Apple computer, you've probably got Word or Excel on that computer-- the future, though, is Azure. So do they need to get, you know-- do they need, as you said, what did you do for me lately with stockland, do they need to really ramp that up in the next report?

RISHI JALURIA: You know, in all honesty, I think as long as they can continue to execute the way they have on Azure, that will be enough for the stock in the long-term, right? The aftermarket moves are very much short-term in nature. I think we know that. But if Azure can continue to grow at similar rates to this for a while and I see no reason why it shouldn't be able to, I think that should be enough for the stock to continue to work cross that $2 trillion bogey on the market cap and go beyond that.

SEANA SMITH: Hey, Rishi, we heard from Intel they expect PC demand to be robust here with the tailwind from the work from home, the trend that you were just talking about. In terms of what this means for Microsoft, when we talk about the impact that this could potentially have on Windows, what's the upside on Windows, do you think?

RISHI JALURIA: Yeah, I think that's exactly it, right? You get a nice attach, a nice follow-on effect from the commentary that you heard from Intel, right? Personal computing was actually a pretty solid print in Microsoft's numbers here, and I expect that to continue, right? Because we are heading into a hybrid work environment. And it's not going to be surprising that individuals might have more than one device. And there's multiple licenses that come along with that. So I think that's all going to be positive for Microsoft.

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