Cloud software and services giant Microsoft (MSFT – Free Microsoft Stock Report) reported revenue and earnings of $32.47 billion and $1.10 a share, respectively, for its fiscal second quarter (ended December 31st). This was a good financial performance, in our view, with the numbers differing little from our estimates of $35.0 billion and $1.09 share. After rising in price prior to the release of the December-period report, MSFT shares have basically retraced the move, suggesting most investors were generally satisfied with the report.
Once again, the performance from the company's commercial cloud business was impressive. Bookings advanced 22.0% (common-currency) in the December period, outpacing the growth in the previous three quarters. In addition, revenue advanced 47.5%, to $9.0 billion, and the gross margin widened to 62%, up from the 57% recorded in the year-ago period. To wit, Microsoft continues benefiting from larger and longer-term customer commitments to Azure, the company's cloud platform, which, in turn, has helped support the better profitability. Our sense is the wider range of higher-valued products and services currently being sold on the platform will effectively work to bring more workloads onto Azure and increase the operating leverage in the commercial cloud business in coming quarters.
Elsewhere, Office 365 remained an important factor in Microsoft's second-quarter results, with commercial products and cloud services revenue growing 11%, while consumer subscribers continued to make progress, reaching 33.3 million. For its part, Windows OEM Pro revenue kept pace with the commercial PC market, though the consumer side of the Windows business was pressured by products from the entry-level category. Still, Windows commercial products and cloud services revenue advanced 13%, benefiting from the adoption of premium offerings. Finally, Gaming had a good holiday season, with a strong assist from related software and services.
Looking forward, we continue to like Microsoft's prospects and expect the company to continue executing well and making rapid progress in the cloud arena in coming quarters. That said, MSFT shares have appreciated nicely over the last four or five years, with the market placing a premium on the stock. Although well deserved, in our view, a degree of caution may well be warranted for those considering making new commitments to these high-quality 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 and offers cloud services.
- Charles Clark
