High-tech giant and Dow Industrials component Microsoft Corporation (MSFT – Free Microsoft Stock Report) reported revenue and earnings of $30.6 billion and $1.14 a share for its fiscal third quarter (years ends June 30th). This was a very good performance, in our view, comparing favorably with our estimates of $30.0 billion and $1.02 a share. Indeed, the recent release added to the lengthening string of reports chronicling the company's success, and investors greeted it quite warmly.
Microsoft continues to gather steam in its efforts to deliver cloud architecture and services to businesses of all sizes, as they transition their operations into the digital world. On point, this momentum was an important factor in the strong performance of its commercial business in the March period, where cloud revenue came in at $9.6 billion, an increase of 41%. Specifically, revenues from its Azure platform remained on a rapid advance in fiscal third quarter, progressing 73%, with profitability improving with scale and the increasing use of higher-valued services. Meanwhile, Office 365 in both the commercial and consumer arenas remains by far the most popular productivity suite delivered as a service, with seat counts continuing to progress at a good pace. For its part, Windows 10 and the associated ecosystem continues to contribute nicely, with revenues from commercial products and cloud services moving forward 18%.
It should now be no secret that MSFT shares have performed quite well in the last few years, with the company's market capitalization increasing markedly. The question is whether Microsoft can continue to deliver the kind of operational and financial performances needed to keep the stock on an upward trend. There is no definitive answer here, though our sense is the company is extremely well positioned to place its products and services not only with its traditional enterprise customers, but with a whole range of smaller businesses. Accordingly, we think the momentum propelling the company forward is likely to remain for some time yet. Indeed, although Microsoft has not yet given a specific forecast for fiscal 2020, it seems that revenues and operating profits may well continue progressing at a double-digit rate, consistent with the likely performance to be posted in fiscal 2019.
Finally, Microsoft is shareholder friendly, in that it returns cash to its ownership via share purchases and a respectable dividend. In all, high-quality MSFT shares should still fit well in most buy-and-hold portfolios. That said, those considering new commitments will have to show a willingness to pay a premium.
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
