The rich get richer.

On a day when Microsoft Corp. briefly became only the second company to be worth $2 trillion, it announced fiscal third-quarter earnings and revenue that easily beat analysts’ estimates. But its stock fell more than 2% in after-hours trading as investors took profits following a 13% run-up in the previous month.

There was nothing evident in the numbers to warrant a rush to the exit. The software and cloud giant said profit jumped 39% from a year ago, to $15.46 billion, or $1.95 a share, aided by a $620 million net income-tax benefit. Even without that windfall Microsoft still would have beaten Wall Street’s $1.78-a-share forecast. Revenue grew 19%, to $41.7 billion, ahead of average estimates of $41.04 billion. Operating income rose 31%, to $17 billion.

Analyst Charles King of Pund-IT dismissed the after-hours selloff as a blip. “Given the overall strength Microsoft demonstrated this quarter, profit-taking seems the likeliest reason,” he said. “The company’s stock is up over 50% in the past six months, and it has attained new highs in each of the past three days.”

Analyst Patrick Moorhead of Moor Insights & Strategy agreed. “Microsoft had a very good quarter and it grew where you would expect it to, in areas of strength and during the pandemic,” he said.

Results were strong across the board:

• Revenue in the Productivity and Business Processes segment of Microsoft’s business rose 12% in constant currency terms, to $13.6 billion, with the Office Commercial products and cloud services sub-segment up 2% and the Microsoft 365 Consumer subscriptions crossing the 50 million threshold. LinkedIn revenue climbed 23% in constant currency. And Dynamics products and cloud services rose 22%, led by a 40% jump in Dynamics 365 revenue.
• The Intelligent Cloud segment revenue rose 20%, to $15.1 billion, beating the high of guidance the company gave last quarter. The server products and cloud services subsegment grew 23%, aided by 46% growth in the Azure cloud business.
• The More Personal Computing segment grew revenue 16%, to $13 billion, with Windows OEM revenue up 10% and search advertising sales increasing 41%.

“Revenue growth was strong across the units and, in many ways, was a continuity with the pattern we’ve seen before,” said Andrew H. Bartels, principal analyst at Forrester Research Inc. Microsoft has shown remarkable consistency in the growth rates for all of its businesses each quarter despite working off a larger and larger base.

Finding a way to grow

That is particularly notable in mature markets like Microsoft 365, which “we thought might be reaching saturation so it’s surprising to see it continue to grow at the rate it’s growing,” Bartels said. International sales could be one reason but even there the penetration rate is high in mature economies. “Anybody who wants a PC probably has one. Anybody who wants Office already has it,” he said. “Yet they seem to find a way to grow.”

Chief Executive Satya Nadella (pictured) said the company continues to draft off of digital transformation initiatives accelerated by the pandemic. “Digital adoption curves aren’t slowing down. They’re accelerating, and it’s just the beginning,” he said in a statement. The Microsoft Cloud, which encompasses a full range of cloud-delivered software, generated $17.7 billion in revenue, up 33% over the same period a year earlier.

“The flywheel effect of increasing integration between its portfolio of products has benefited Microsoft perhaps more than any other tech firm at the moment,” said Nick McQuire, chief of enterprise research at CCS Insight Ltd. “This broad and integrated portfolio has been particularly instrumental in improving customer value and its competitive advantage, which is why Microsoft remains one of the major forces in helping enterprises to transform over the past year.”

On the analysts’ call, Nadella said customers are increasingly buying multiple products and services clustered around the Azure cloud. “We’re seeing that we can bring the power of the entire cloud together in a more strategic way,” he said.

Microsoft’s operating leverage continues to show up in dramatic increases in net income, up 38% in the quarter or twice the rate of revenue increase. The 40% jump in Dynamics 365 and the 22% increase in Dynamics products and cloud services indicates the company is having some success bidding for the market for mission-critical applications. But Forrester’s Bartels said SAP SE and Oracle Corp. have nothing to worry about, noting that Dynamics generates less than 2% of the company’s quarterly revenue.

One area where Microsoft could be looking at a significant long-term sales lift breakout is in healthcare, a prospect that motivated its plan to acquire Nuance Communications Corp.

“We think of healthcare as a critical opportunity and a huge addressable market,” Nadella said. “We have always gone into an industry with a platform and ecosystem approach and Nuance has already done that by partnering deeply with the ecosystem to benefit the providers. This allows us to integrate that more quickly with what we’re doing with Teams,” the company’s collaboration and conference platform.

Photo: Microsoft/Facebook