Microsoft Goes From Window(s) Cleaning to Cloud-Gazing – Yahoo Finance
- By Sangara Narayanan
After waiting for nearly two years, Microsoft (MSFT) finally reported quarterly revenue growth during the second quarter of 2017. In many ways, Microsoft’s performance during the second quarter is a peek into what the future holds for the company. Revenue from the Productivity and Business Process segment as well as Intelligent Cloud was up 10% during the quarter, while More Personal Computing declined by 5% due to lower phone revenues.
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Microsoft raced past analyst estimates, posting adjusted EPS of 83 cents on the back of $26.07 billion in revenues, while the market was expecting 79 cents in earnings and $25.3 billion in revenues.
The above-average results were made possible by stellar performance from Microsoft’s cloud business, whose annualized commercial cloud revenue run rate has now exceeded $14 billion. Microsoft takes the revenue earned from cloud products (Office 365, Microsoft Azure, Dynamics 365) in the final month of the quarter, and multiplies it by 12 to get to its annual cloud run rate. During the first quarter, Microsoft said that its cloud run rate exceeded $13 billion, and in the second quarter it has gone past $14 billion. This means Microsoft’s cloud properties brought nearly $1.08 billion in September 2017 and $1.16 billion December 2017.
Microsoft’s cloud-based businesses are still growing sequentially, which is great news for the company as it transitions from being Windows-dependent to being cloud-reliant. Office 365 commercial revenue grew 47% during the quarter, while Office consumer products and cloud services revenue increased by 22%.
Office and related products, especially the cloud-delivered lineup, has been growing in a very strong way for the company. Microsoft has steadily built its lead in this segment, and if the above-47% growth of the last six quarters continues, it will be very difficult for the competition to catch up.
Microsoft Azure has been clocking triple-digit growth rates for the past several quarters, and in the second quarter it came very close, posting 93% growth over the prior period. Microsoft noted that Azure compute usage has more than doubled during the quarter.
Productivity and Business Processes and Intelligent Cloud, the two forward-looking business streams that are based on cloud delivery, made $14.283 billion during the second quarter, nearly $2.5 billion more than the More Personal Computing segment that hosts Windows OEM, Phone and Gaming revenues. Though Windows OEM revenue increased by 5% during the quarter, Windows revenue are on shaky grounds due to the steady decline of PC sales around the world. As smartphones and tablets keep replacing PCs, the Windows operating system, which has a negligible presence in the mobile world, does not have a great future, at least in the short to medium-term.
But second quarter results have already proved that Microsoft has successfully transitioned into a new era, where cloud, not Windows, dominates the revenue landscape. The company is now poised on the threshold of where CEO Satya Nadella wants it to ultimately go, and the next several quarters will make that transition even more pronounced.
Disclosure: I have no positions in the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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This article first appeared on GuruFocus.