Microsoft's sales growth

Microsoft shares fell despite posting higher earnings per share and revenue than analysts on average expected. Investors were disappointed by slowing sales growth in Microsoft's cloud division.

Microsoft (MSFT) shares fell 2.3 per cent after the close of trading on Tuesday after the company released its report for the third quarter of fiscal 2021.

Microsoft reported growth in earnings per share to $1.95, up $0.17 from analysts' estimate of $1.78. Revenue was up 19% (from last year) to $41.7bn, also up from an estimate of $41.03bn. Microsoft's divisional revenues The Productivity and Business Processes division posted revenue growth of 15% to $13.6 billion, driven by strong sales of commercial software products such as Office 365 and Dynamics 365, which jumped 22% and 45% respectively.

The Intelligent Cloud division grew revenues 26% (over last year) to $15.1 billion, largely due to a 50% increase in Microsoft Azure revenues.

The More Personal Computing division reported revenue growth of 19% to $13 billion, largely due to a 50% increase in sales of the Xbox Series X and S gaming consoles released last November.

According to Gartner Inc., Microsoft's total PC shipments were up 32% for the quarter. But according to Microsoft CFO Amy Hood, a worldwide shortage of chipsets is limiting PC availability and limiting the company's ability to build enough of the new Xbox console models unveiled in November.

The decline in Microsoft shares after the report can probably be described as temporary, as the company maintains a strong growth rate and current investor expectations may simply be overstated.

Commenting on the Microsoft report, an analyst at Piper Sandler noted that investor expectations are rising, but sentiment remains broadly optimistic.

Microsoft shares have risen 50.5% over the past 12 months and 17.8% since the start of 2021.