High-tech giant and Dow Jones component Microsoft (MSFT – Free Microsoft Stock Report) reported revenue and earnings of $36.9 billion and $1.51 a share for its fiscal second quarter, easily surpassing our estimates of $35.7 billion and $1.32. (Years end June 30th.) The strong performance was once again underpinned by the company's commercial business, with particular emphasis on the continuing success Microsoft is having with its customers as they transition to cloud architecture and services. For their part, investors were evidently quite pleased, as the MSFT shares have moved up in early market trading.
A review of the company's key performance metrics show that commercial cloud revenue reached $12.5 billion in the December period, an advance of nearly 14%, while the gross margin in the commercial cloud business widened five percentage points, to 67%. In addition, commercial bookings grew 31% in the quarter, continuing a general upward trend over the last four earnings periods. We note that Microsoft is continuing to experience strong demand for the Azure platform and associated services, which is an important factor in the company's current success in the commercial arena. That said, traditional server products and services have not gone unnoticed, as large enterprise customers work to balance their needs as it relates to private/public clouds.
Elsewhere, Office 365 also continued to power forward in both the commercial and consumer markets. To wit, Office commercial seat growth came in at 21%, consistent with the current trend, while subscribers to Office consumer tallied 37.2 million, an increase of 11.7%. Finally, the Windows ecosystem contributed nicely in the December period, as OEM products benefited nicely from the ending of the support for Windows 7.
Commentary from executive management suggests that the prospects for Microsoft are good, with double-digit revenue growth and gross margin expansion in the cards for the balance of the fiscal 2020 and into fiscal 2021. That said, it is no secret that MSFT stock has been a stellar performer over the last few years, with a current market valuation of some 29 times earnings. Although it appears that the wind is likely to remain at the company's back for some time, the question arises whether earnings may need some time to catch up to the shares' current price, making new commitments to this high-quality stock less interesting, at this juncture.
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
