Software and cloud services giant Microsoft Corp. (MSFT – Free Microsoft Stock Report) reported revenue and earnings of $30.1 billion and $1.13 a share, respectively, for its fiscal fourth quarter, which ended June 30th. The financial performance compared favorably with our estimates of $29.2 billion and $1.07, primarily owing to ongoing strength in the company's commercial cloud business. For fiscal 2018, revenue and earnings came in at $110.4 billion and $3.88 a share, nicely ahead of the $96.7 billion and $3.08 recorded last year. From where we sit, the latest financial results continued to show that Microsoft is making very good headway meeting the demand from its customers as they embrace the advantages of cloud architecture and cloud computing. It appears that most investors agree, as MSFT shares have taken a respectable move up in recent trading.
As mentioned, the commercial cloud business once again performed nicely, with billings advancing 18% in the June period over the 30% increase recorded last year. Commercial revenues were $6.9 billion, up 53%, and the associated gross margin continued to expand, ending the year at 58%, versus the 52% logged in the final quarter of fiscal 2017. We note that the Azure platform continued to be quite popular with customers, with revenue up some 89% in the latest quarter. Azure, along with Microsoft's cloud-based services (Office 365, Dynamics 365, etc.), is well placed to continue making progress in the commercial cloud, and is seen as a very serious competitor to Amazon.com's (AMZN) Amazon Web Services (AWS), in our view.
From a little broader perspective, Microsoft's range of Office 365 services continued to find favor in the both the commercial and consumer markets, with revenues and users in both arenas tracking forward nicely. Meanwhile, for its part, LinkedIn seems to be working out well for the company, as revenue and engagements appear to be gaining steam, and losses (including acquisition-related amortization) have narrowed sharply. Elsewhere, Windows 10, continues to find interest from OEMs, with the Pro version advancing at a faster pace than the overall PC market. Corporate adoption of Windows 10 remains good, as well. Finally, Microsoft's gaming business put up another good quarter, benefiting from Xbox software and services related to a third-party title.
As it stands now, the positive trends that are influencing Microsoft's business should remain in place for fiscal 2019, with revenues from the cloud space remaining on an upward trajectory and profitability continuing to widen (though probably not at the pace set in fiscal 2018). As a result, shareholders can expect the company to continue investing in its cloud strategy, in order to meet customer demand. In addition, the company's share-repurchase program and a growing dividend look to remain on the menu this year. In brief, if MSFT shares are already owned, we advise our subscribers to continue to do so. If not, new commitments should be made carefully, in our view, given the support the stock has experienced over the last 12 to 18 months.
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 and offers cloud services.
- Charles Clark
