Microsoft beats Q4 2020 estimates as commercial cloud revenue improves

Microsoft announced its Q4 2020 performance with growth in revenue to $38.0 billion and a fall in earnings per share to $1.46, down 15% in GAAP but outperforming consensus estimates.

Operating income was $13.4 billion and increased 8%, while net income was $11.2 billion and decreased 15% GAAP.

The company noted that, like the third quarter, the company felt the impact of the coronavirus pandemic.

"Productivity and Business Processes and Intelligent Cloud segments, cloud usage and demand increased as customers continued to work and learn from home. Transactional license purchasing continued to slow, particularly in small and medium businesses," they stated.

In Q3 2020 Microsoft reported  revenue of $35.0 billion with net income of $10.8 billion and earnings per share of $1.40. In Q4 2019, Microsoft reported revenue of $33.7 billion and operating income of $12.4 billion for its fourth quarter of 2019. Diluted earnings per share was $1.71 GAAP.

Q4 2020 Commercial cloud revenue reached a $50 billion annual rate for the first time, CFO and executive vice president Amy Hood stated, adding that Commercial bookings were better than expected with 12% growth year-over-year.

“The last five months have made it clear that tech intensity is the key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger,” said Satya Nadella, Microsoft's CEO.

Revenue in Productivity and Business Processes, which includes Office and Dynamics was $11.8 billion, up 6%. Dynamics revenue overall increased 13%, with Dynamics 365 revenue growth of 38%. Office Commercial products and cloud services revenue increased 5%, driven by Office 365 Commercial revenue growth of 19%. Operating income fell 9% and expenses grew 10% in this segment, "driven by Teams marketing and investmetns in cloud engineering."

In Q3 2020, revenue in Productivity and Business Processes rose 15% to $11.7 billion. Dynamics 365 revenue grew 47%. Office 365 Commercial revenue grew 25%.

Q4 2020 Azure revenue grew 47%, with the Intelligent Cloud segment accounting for $13.4 billion in revenue, 17%. In Q3 2020, Azure revenue grew 59% among overall Intelligent cloud revenue of $12.3 billiion. Investments in Azure drove operating expenses up 19%, but operating income rose 19%, too. 

Gaming benefited from an increase in demand, with Xbox content and services revenue up 65% and the company noted a $450 million charge for the closure of the Microsoft Store physical locations. However, LinkedIn suffered due to the weak job market.