Cloud and Artificial Intelligence Power Microsoft Earnings To Beat Forecasts

Microsoft $MSFT smashed analysts expectations for its December quarter earnings report Wednesday after the close. The software giant beat on both earnings and revenue. Once again $MSFT Cloud earnings powered revenue.

Microsoft $MSFT smashed analysts expectations for its December quarter earnings report Wednesday after the close. The software giant beat on both earnings and revenue. Once again $MSFT Cloud earnings powered revenue.

Microsoft’s Azure cloud-computing segment continued to expand, posting strong gains in its business selling web-based services to corporate customers. $MSFT is now the clear No. 2 provider of on-demand computing processing and storage behind market pioneer Amazon.com $AMZN.

Earnings

Adjusted earnings per share of 96 cents, up 20% year over year, on sales of $28.9 billion, up 12% on the year, for its fiscal second quarter. The result beat analysts 86 cents EPS and $28.35 billion. Microsoft did not give March-quarter guidance in its earnings news release. 

Reaction: Microsoft Corporation After-hours: 95.05 +0.04 (+ 0.04%) 

(All Time High of $95.45 was seen Monday, 2 days ago)

Cloud Success

Microsoft’s Azure cloud computing platform growth has slowed down over the last few quarters but annually it’s still showing near 100 percent annual growth.  In the last quarter for its “Intelligent Cloud” business (which includes Azure and other components) Microsoft posted revenues of $7.8 billion, up 15 percent on the quarter. 

  • Server products and cloud services revenue increased 18% (up 18% in constant currency) driven by Azure revenue growth of 98% (up 98% in constant currency)
  • Enterprise Services revenue increased 5% (up 3% in constant currency) driven by Premier Support Services

“This quarter’s results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice. iOur investments in IoT (Internet of Things), data, and AI (artificial intelligence) services across cloud and the edge position us to further accelerate growth.” Microsoft Chief Executive Satya Nadella said

Personal Computing

Revenue in More Personal Computing was $12.2 billion and increased 2% (up 2% in constant currency), with the following business highlights: ·

  • Windows OEM revenue increased 4% (up 4% in constant currency) driven by OEM Pro revenue growth of 11% 
  • Windows commercial products and cloud services revenue decreased 4% (down 5% in constant currency) due to the impact of a prior year large deal
  • Surface revenue increased 1% (relatively unchanged in constant currency)

Last quarter this segment was hit with significantly fewer Surface devices being sold than previous quarters. These numbers may have been affected by Microsoft launching a number of new devices late in the quarter, including a new Surface Pro and and a new laptop. 

X Box

Gaming revenue increased 8% (up 8% in constant currency) driven by Xbox hardware revenue growth from the Xbox One X launch

Bing

Search advertising revenue excluding traffic acquisition costs increased 15% (up 15% in constant currency) driven by higher revenue per search and search volume

Microsoft productivity tools

Revenue in Productivity and Business Processes was $9.0 billion and increased 25% (up 24% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 10% (up 10% in constant currency) driven by Office 365 commercial revenue growth of 41% (up 41% in constant currency)
  • Office consumer products and cloud services revenue increased 12% (up 11% in constant currency) and Office 365 consumer subscribers increased to 29.2 million
  • Dynamics products and cloud services revenue increased 10% (up 9% in constant currency) driven by Dynamics 365 revenue growth of 67% (up 68% in constant currency) ·
  • LinkedIn contributed revenue of $1.3 billion during the quarter with sessions growth of over 20% for the fifth consecutive quarter

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Guidance

Microsoft did not give guidance for the December quarter, its fiscal Q2, in its earnings press release. 

Source: MSFT Earnings Release, AlphaStreet

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