Microsoft’s product diversification shields investors

Microsoft (NASDAQ:MSFT) is the world’s second-largest company by market cap. They are doing everything they can to catch up to Apple — reporting solid third-quarter earnings, which sent $MSFT up 4.8% yesterday.

What’s the big deal? Microsoft can mean different things to people: Office, Xbox, LinkedIn, Azure… a diversified powerhouse that has mitigated supply chain issues and advertising pains impacting other tech giants.

• Ads: At $10B in 2021 sales, only 6% was made from Microsoft’s ad business.
• Hardware: Microsoft’s “more personal computing” segment — which includes Windows, Surface devices and Xbox sales — made up a third of its sales in 2021.

Growth slowing? Microsoft has fast-growing cybersecurity and cloud businesses to make up for the slack — businesses that continue to benefit from strong digital demand.

Earnings update: As Microsoft reported solid growth in all three of its major business segments, sales and earnings topped expectations.

Total sales grew 18% — with its Azure and cloud services growing the fastest at 46%.

• Market hardware sales are down: PC sales fell 5% in the first quarter of 2022. Global video game hardware sales also fell 24% in March compared to a year ago (VentureBeat).
• Microsoft’s hard sales are up: Xbox hardware sales were up 14%, and Surface Laptop hardware sales were up 13% — despite slowing global PC and video game hardware sales.

In the first quarter of 2022, Xbox hardware sales topped PS5 and Switch sales — simply by staying in stock.

Per Piper Sandler analyst Brent Bracelin, cloud was the “bright spot” that continues to deliver despite expectations of slowing growth post-COVID (YF).

Its CFO projected better-than-expected results for the next quarter. Still, global market conditions continue to move the markets for now.