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Microsoft reported strong third-quarter results as its commercial cloud revenue hit a $38.4 billion run rate joining an exclusive club whose only membership requirement is a market capitalization value of $1 trillion or more.
Microsoft reported earnings for its third fiscal quarter of 2019, including revenue of $30.6 billion, net income of $8.8 billion, and earnings per share of $1.14 (compared to revenue of $26.8 billion, net income of $7.4 billion, and earnings per share of $0.95 in Q3 2018). All three of the company’s operating groups saw year-over-year growth.
Even though analysts had expected Microsoft to earn $29.8 billion in revenue and report earnings per share of $1.00, the company easily beat expectations. The company’s stock was down 0.34% in regular trading, but up some 3% in after-hours trading.
Satya Nadella, CEO of Microsoft said:
“Leading organizations of every size in every industry trust the Microsoft cloud. We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow.”
Cloud and Office continued to push Microsoft’s revenue in the right direction, but Xbox, Surface, and Windows have held their own this quarter to help drive some solid results.
Azure’s revenue surged 73%. Microsoft’s commercial cloud business, which includes Azure, grew 41% in the quarter to $9.6 billion. And while Azure is still being much smaller than its rival Amazon Web Service, Stifel analysts say it’s growing faster than AWS was at a similar size.
Stifel’s Brad Reback, who has a buy rating on the stock said:
“We continue to believe the shift to the cloud will be additive to Microsoft given a broader portfolio of products with deeper functionality as well as Microsoft’s ability to enter new categories where it did not compete previously.”
Christopher Eberle, a senior equity analyst with Nomura, said that with Azure, “one should assume a slower rate of growth as we move forward, simply due to the law of large numbers.”
Amy Hood, executive vice president and chief financial officer of Microsoft said:
“Demand for our cloud offerings drove commercial cloud revenue to $9.6 billion this quarter, up 41% year-over-year. We continue to drive growth in revenue and operating income with consistent execution from our sales teams and partners and targeted strategic investments.”
Microsoft revealed in its fiscal Q1 that Surface Book 2 and Surface Go were pushing sales, but the company launched its Surface Pro 6and Surface Laptop 2 late last year, alongside the new Surface Studio 2 and Surface Headphones.
Microsoft’s gaming business continues to be a highlight of the company’s earnings. Gaming revenue is up 5 percent this quarter, although this was offset by Xbox software making up for lower Xbox hardware revenue.
Microsoft has also successfully monetized its LinkedIn acquisition, which closed in December 2016. Various divisions at the company are still figuring out how they can integrate with the platform.
It’s not clear whether Microsoft can do the same with its $7.5 billion acquisition of GitHub, which closed in October.
This boost makes Microsoft the third US company to hit that market-cap mark, as well as the most valuable US company, based on the trading price of all of a company’s shares added together. The first company to hit that mark was Apple in August, even though its current market cap is now $976 billion. Amazon later joined Apple a month later but now has a value of $935 billion.