Software and cloud infrastructure/platform and application services giant Microsoft (MSFT - Free Microsoft Stock Report) reported revenue and earnings of $24.5 billion and $0.84 a share, respectively, for its fiscal first quarter (years end June 30th). The financial performance for the September period was nicely ahead of our estimates of $24.0 billion and $0.76. For the most part, wider profit margins, which benefited from the increasing scale of the company's cloud businesses, powered the better-than-expected financial performance, which was greeted with enthusiasm. On point, MSFT shares have risen sharply in recent trading.
From an operational standpoint, Microsoft continued to experience good demand for its cloud offerings, with revenue growth from Office 365 and Dynamics 365 helping to drive the Productivity and Business Processes segment forward. In terms of revenue, LinkedIn was also a positive factor here, though the recent addition continued to be a drag on the segment's operating profit (inclusive of acquisition-related amortization).
Meanwhile, the Intelligent Cloud segment saw server products and cloud services revenue progress some 17%, with that from cloud platform Azure advancing 90% and associated compute usage more than doubling.
Finally, the interest in Windows 10 remains active, with revenue from commercial products and cloud services contributing nicely to the performance of the More Personal Computing segment. Elsewhere, Microsoft's search business continues to progress based on revenue per search and search volume.
From a broader perspective, Microsoft is showing tremendous strength in its commercial cloud business, indicating that the company is having increasing success bringing new and existing customers onto is cloud infrastructure/platform. This is particularly important, given the keen competition in this arena and sets the stage for Microsoft's success over the longer term.
It is no secret that MSFT shares have performed well so far this year. That said and taking into account the good prospects we envision for the company over both the near- and longer-term, we are less inclined to recommend the stock as a new commitment at this time. Nonetheless, if these high-quality shares are already owned, we would continue to hold onto them, for now.
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%.
— Charles Clark
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
