Nothing But Blue Skies For Microsoft

As expected, Microsoft Corporation MSFT posted yet another strong quarter results as Office, Surface, and cloud businesses boosted its second quarter. Beating revenue and profit estimations caused its shares to rise 2 percent during after-hours trading.

Second Quarter Results

Revenue went up 14 percent and reached $36.9 billion, topping expectations of $35.67 billion. Additionally, net income increased 36 percent from $10.2 billion to $11.6 billion. But, most importantly, Surface and Office segments are both up. Office 365 commercial revenue went up 27 percent comparing to one year ago with Office consumer products and cloud services increasing 19 percent whereas Dynamics 365 increased 42 percent.

But it is Azure that jumped the highest, 62 percent to be exact, and if we look for constant currency basis figures, it is even 64 percent. The only segment down is Gaming and with a massive drop of 21 percent.

Main Business Areas

LinkedIn as the most recent property expanded by 24 percent as Microsoft has stressed early on that its growth rate is a key priority. If we look at Microsoft's three main business areas, they all also performed quite well. Office, LinkedIn, Dynamics (Productivity and Business Processes) amounted to $11.8 billion which is an increase of 17 percent. Azure and enterprise services grew 27 percent to $11.9 billion.

This indicates that Microsoft is successfully gaining brand recognition in the sector of enterprise services where it is competing with Oracle Corporation ORCL and Salesforce CRM. And even the fallen gaming segment, when looked as part of the bigger frame including Windows, Surface, Xbox and Bing ads, also achieved an increase of 2 percent, amounting to $13.2 billion.

Improvements Ahead

CFO Amy Hood revealed that as Microsoft works through execution challenges in the consumer segment, Surface revenue growth is expected to be in the low single digits range along with declining gaming revenue. But Microsoft prepares to launch a new Xbox console while investing in efforts like Xbox Game Pass to enhance its gaming business over the long term. Although the results of these efforts are unlikely to be seen in next quarter's revenue, this is surely not causing any sleepless nights to investors.

Outlook

This has been a rather crowded week for technology companies and by far the biggest ones, and so far, it has been a good one. Apple Inc AAPL also saw its share price rise modestly after its quarter earnings were released. But Microsoft's stock has indeed been on track lately with more than stable earnings. Afterall, its portfolio stretches over so many fields with Windows performing even better than expected in the post-iPad era and Cloud business continuing to grow.

Microsoft is the likely winner when it comes to bringing the best of cloud and AI worlds together. Despite Amazon.com, Inc. AMZN fighting for return of the JEDI as it petitioned the US Court of Federal Claims to halt the contract that the U.S. Department of Defense awarded to Microsoft, it is unlikely to take this trophy away from the Windows giant. Despite having 5x more deployed cloud infrastructure comparing to its next 14 competitors combined, the one area that Amazon hasn't outperformed is the crucial area for this security conscious project. Namely, hybrid cloud computing is why Pentagon insisted that the contract went to the most deserving company. Not to mention that Microsoft gets to see a 20 percent boost in Azure Cloud revenue within the first few years as opposed to the potential 6.5 percent gain for Amazon.

Although both being significant gains, it all goes very much in favor of Bill Gates' creation. So, it seems that there is indeed nothing but blue skies ahead for Microsoft.

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