Software and cloud services giant Microsoft (MSFT - Free Microsoft Stock Report) has reported respective revenue and earnings for its fiscal second quarter of $26.1 billion and $0.83 a share, inclusive of the recent acquisition of LinkedIn (completed on December 8th), but excluding the effect of Windows 10 revenue deferrals. (Fiscal years end June 30th.) Our revenue and earnings estimates, which did not include LinkedIn, were $25.1 billion and $0.78 a share. On a non-GAAP basis, LinkedIn added $228 million to the top line, but penalized net income by $100 million, or about $0.01 a share. From a broad perspective, Microsoft's latest financial report made for excellent reading, with the company continuing to make progress with Windows 10 and the associated ecosystem, while also meeting the burgeoning demand for its cloud infrastructure and higher-valued services. Investors were evidently pleased with the results, as MSFT shares, which had already performed well since mid-October, took a nice step up in the wake of the release.
Although the company's three reporting segments Productivity and Business Processes, Intelligent Cloud, and More Personal Computing are important in their own right and give investors a way to measure financial performance, it is becoming increasingly clear that these business units do not stand alone, but are intertwined. True, the swift adoption of Office 365 in the commercial and consumer arenas, the rapid increases in compute time on Microsoft's cloud platform Azure, and the rising corporate interest in Windows 10 are certainly meaningful. However, the interplay that is developing between each segment's operations suggests that Microsoft is making good headway in its transition from a traditional software company selling perpetual license agreements and maintenance to one that is meeting the changing needs of its customers, as the secular move to cloud architecture and computing pushes inexorably forward. That said, Microsoft faces good competition, but it seems that its depth of offerings and its established position with commercial customers should be to its advantage.
What about Microsoft stock? Even though the shares have had a good run over the last three and a half years, or so, we would suggest those already holding the stock to continue to do so. Our sense is the company will continue to have success with its current business strategy which, in turn, will most likely be reflected in continued market support for high-quality MSFT shares.
About The Company:Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2016 were as follows: Productivity & Business, 28.8%; Intelligent Cloud, 27.2%; Personal Computing, 44.0%. Research & development spending as a percent of 2016 sales was 13.0%.
