Last week Microsoft reported 21% growth in earnings per share, to $1.38, beating the consensus estimates which stood at around $1.24.
The software giant also reported revenue was up $33 billion, a gain of 14%, which again smashed analysts’ consensus estimates.
It was a good set of numbers from Microsoft: productivity and business processes revenues were up 15% in constant currency terms, with strong growth across all sub-segments. Commercial revenues from Microsoft Office gained 15% while Office 365 is obviously gaining traction, reporting revenues up 28%.
Other key areas of the offering, like LinkedIn and MS Dynamics, the firm’s CRM platform, also saw good growth.
Intelligent Cloud is key to Microsoft’s future
Of potentially most interest to investors was the Intelligent Cloud number, which saw 29% growth and gained on last quarter’s numbers too. Cloud-based services like Microsoft Azure look like they could end up being a big contributor to Microsoft’s bottom line going forward. Azure reported over 63% growth, down from last quarter’s 68%, but still meteoric. Server products and enterprise mobility revenues were also solidly up.
You have to look hard to find anything to disappoint here, and it is really on gaming revenue and sales of Microsoft’s Surface that stand out as the bad apples. But this is really not something we are too worried about at this stage. Our focus is on Azure, which continues to look like the leader in terms of infrastructure among the cloud offerings out there.
Azure has more data centers and is the only cloud that extends to the edge, spanning identity, management, security, infrastructure, and making it easier to connect to Internet of Things devices.
“The Intelligent Cloud segment, which houses Microsoft Azure – also includes its Windows Server, SQL Server, System Center, GitHub and consulting, contributed $10.85 billion in revenue,” observes Anthony Ginsberg, creator of the HANetf HAN-GINS Cloud Technology ETF. “The FactSet estimate was lower at $10.42 billion. By rolling Windows into its cloud offering for businesses – Microsoft is experiencing the fastest gains of any of the large Cloud platforms.”
Microsoft confirmed LinkedIn is moving to Azure, in addition to Microsoft’s acquisition of cloud migration specialist Movere and data security firm BlueTalon.
Microsoft Azure the Jewel in the crown?
Azure is used by 95% of the Fortune 500 companies and is in danger of becoming the jewel in Microsoft’s crown. According to Gartner Research, it cloud market share is now 15% versus 31% for Amazon Web Services.
Microsoft shares have climbed steadily from 131 on Wednesday to hit 144 on Monday, with additional impetus after Friday’s spike. It is trading on 29.9x consensus June 2020 earnings with a 1.4% prospective dividend yield. The company still looks attractive at this valuation and we particularly like to ongoing ambitions in cloud technology which we think will confer significant new advantages to Microsoft on top of its retail and software offering.
