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Microsoft Blows Past Earnings Estimates Thanks to Cloud, Office, and Gaming Growth

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Apr 27, 2018
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2018 has been a good year so far for Microsoft (NASDAQ:MSFT), with the company reporting revenue of $26.8 billion and net income of $7.4 billion for the quarter ending March 31. That’s a 16 percent year on year increase for revenue and a whopping 35 increase for income. Earnings per share were $0.95, up from $0.70 a year ago. Analysts were expecting revenue in the mid-25-billion range, and earnings per share of $0.80.

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The Cloud Keeps Raining Cash

As in their last earnings report, Microsoft’s Intelligent Cloud division was the company’s biggest source of new growth. Intelligent Cloud revenue was $7.9 billion, driven by an impressive 93 percent increase in Azure business. Dynamics 365, Microsoft’s cloud-based business management system, also saw 65 percent growth. Needless to say, cloud services were mentioned a lot during Microsoft’s earnings call, with the company planning on integrating the tech into almost everything they do. The company also emphasized the importance of privacy and security, and, indeed, Microsoft has had fewer cloud security breaches than competitors like Apple. The company would be wise to continue the focus.

Office 365, Dependable as the Seasons

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Microsoft continues its stranglehold on productivity software with Office 365 continuing to be a big money maker with 135 million business users and 31 million consumer subscriptions. The Productivity and Business Processes division pulled in 9 billion, a 27 percent increase over the same period last year. The recently-purchased LinkedIn social networking service was also up 37 percent, bringing in revenue of $1.3 billion. All those LinkedIn emails clogging your spam box must somehow be working!

Xbox and Surface Find a Profitable Groove

For the first time in a while, Microsoft had good Surface news this quarter, with revenue increasing 32 percent year over year, keeping business over the all-important billion-dollar mark. The Xbox division was also a bright point, despite the fact that the first three months of the year are usually a down time for gaming. Gaming revenue was up 18 percent, driven by hardware sales and a 24 percent increase in software and services, particularly subscriptions to Xbox Live and Xbox Game Pass.

Looking Forward – The New Blueprint

Microsoft is constructing themselves a dependable money-making machine, powered by the cloud and subscription-based productivity software. This machine will only become more profitable and efficient as Microsoft begins to integrate cloud tech into other aspects of their business, like gaming. Microsoft CEO Satya Nadella is, unsurprisingly, excited about joining all of Microsoft’s divisions together into one big happy cloud-connected family

“We are very bullish about what can happen. […] One of the key things is architecturally, the way we build Azure, the way we build Office 365, the way we build our gaming cloud, and the way we build even Dynamics, are all pretty much one architecture. And you see that even in the way customers use it.

So overall, [Azure] growth will moderate as the numbers become big and they’ve already become very big. But that said, we see plenty of opportunity for total gross margin growth in terms of dollars, just because of the number of markets that we participate in.”

Of course, challenges remain, cyber-attacks and security issues continue to be a major concern for the cloud business, but a vision of Microsoft’s post-Windows future is clearer than ever.  Microsoft’s is looking confidently towards Q4 2018, with the company expecting between $28.8 billion and $29.5 billion in revenue. It’s going to be a hot summer.

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