Microsoft’s Fortunes Buoyed by The Cloud, Xbox and Office Also Doing Well

Nathan Birch

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

It was a happy holiday season for Microsoft (NASDAQ:MSFT), with the company reporting revenue of $28.9 billion and net income of $7.5 billion for the quarter ending December 31, a 12 percent year on year increase. Earnings per share were $0.96, up from $0.83 a year ago.

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Flying High on the Cloud

Microsoft’s Q2 star was unquestionably the Intelligent Cloud division, which brought in revenue of $7.8 billion. It’s still the smallest of Microsoft’s three major divisions, but it’s growing rapidly – the division as a whole was up 15 percent year on year, and the Azure cloud service was up a whopping 98 percent.

Office Business Remains Rock Solid

Microsoft’s future may be in the cloud, but good old dependable Office continues to be a cornerstone for the company. The Productivity and Business Processes division pulled in 9 billion, a 25 percent increase over last year. This was largely driven by Office 365, which is finally taking off in a big way with subscriptions up an impressive 41 percent. The recently-purchased LinkedIn social networking service also had a good quarter, bringing in $1.2 billion.

Xbox Gets a Boost, but Hardware Otherwise Flat

For the first time in a while, the Xbox gaming division was a bright spot for Microsoft. The launch of the Xbox One X boosted overall Xbox One sales by 14 percent, leading to an 8 percent increase in gaming revenue (dollar amounts weren’t provided). Unfortunately, as we already reported, Surface sales were up only 1 percent, with only $1.3 billion in sales.

Looking Forward – Heavy Competition, but Big Potential

Microsoft certainly seems to be well-positioned for continued success going forward, with Azure blowing up and their Office products successfully making the jump to a subscription model. Microsoft vice president of Worldwide Commercial Business Judson Althoff is certainly optimistic about the future:

“Customers are using our technology to create digital business solutions. The 56 percent year-over-year growth in commercial cloud revenue — with broad-based growth across geographic markets and industry segments — is fueled by customer and partner success. Across the globe, industry leaders are choosing Microsoft to power their business strategies and new products, or support culture change.”

That said, the company faces challenges as well – their hardware division is struggling, they face stiff competition on all sides, and cyber-attacks and security issues continue to be a major concern. Overall, Microsoft’s outlook for Q3 is relatively conservative, with the company expecting between $25.2 billion and $26 billion in revenue.

Of course, around $25 billion in revenue is nothing to sneeze at. Microsoft remains a dependable powerhouse, and there’s little to indicate that’s going to change any time soon.

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