Published: Sat, July 21, 2018
Finance | By Gustavo Carr

Microsoft Earnings Preview: Cloud, PC Trends Positive

Microsoft Earnings Preview: Cloud, PC Trends Positive

The business technology giant reported earnings per share of $1.13, which beat analyst expectations of $1.08. Revenue grew by 37% (34% CC).

"Microsoft continues to fire on all cylinders as the company benefits from its strong positioning across major secular compute themes (hybrid, intelligent cloud/intelligent edge, gaming).This, coupled with a favorable IT/macro environment, a Win10 replacement cycle, strong sales force execution and expense discipline, should enable Microsoft to continue to deliver accelerating operating profit and FCF generation in coming quarters".

These results are up 17% year-over-year, and many people will see this as a vindication of CEO Satya Nadella's renewed focus on hardware and cloud services. Azure revenues were up 89 per cent, while enterprise services was up 7 per cent. The gains were broad based: both commercial and consumer Office revenue were up (10 percent and 8 percent, respectively), with 29 percent growth in commercial Office 365 seats and a total of 31.4 million consumer Office 365 subscriptions. Broken down into Microsoft's three segments, Productivity and Business Processes made $9.7 billion, Intelligent Cloud made $9.6 billion, and More Personal Computing made $10.8 billion, seeing 13%, 23%, and 17% growth, respectively.

Net income rose to $8.87 billion, or $1.14 per share, from $8.07 billion, or $1.03 per share, in the year-ago fourth quarter.

For the full year, Microsoft said it earned $16.6 billion on $110.4 billion in revenue.

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On the consumer side, Office revenue growth has slowed down. It was up 23 percent YoY to $9.6 billion for the quarter, and reached $32.2 billion for the year, marking a 15 percent increase.

Microsoft had fired several thousand employees a year ago as it announced a huge do-over in its sales strategy. Dynamics revenue was also up 11 percent.

Microsoft looks to continue investing in games as a service now that they're working on a game streaming service that will stream console-quality games to any device, such as Xbox consoles, PCs and phones.

"Azure has been hot and Office 365, too", said Dan Morgan, a senior portfolio manager at Synovus Trust, which owns Microsoft shares. Despite that being the case, Microsoft has managed to leverage its Xbox branded software and services to increase its gaming revenue by 39% and products such as Xbox Live, Xbox Game Pass, and Play Anywhere titles.

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