Microsoft Delivers a Big Q4 and Record Fiscal Year Thanks to Azure, Gaming Slump Continues

Nathan Birch

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

Microsoft (NASDAQ:MSFT) has delivered their results for the three months ending June 31, 2019, and the quarter was another rousing success for the tech giant. Microsoft raked in revenue of $33.7 billion and net income of $13.2 billion (non-adjusted) during the quarter, a 12 percent year on year increase for revenue and a 49 percent increase for income. Earnings per share were $1.37, which is above the $1.21 per share analysts were expecting. 

Ah, but the brag-worthy numbers didn’t end there! The end of June marked the end of Microsoft’s fiscal year 2019, and the past 12 months have been great for the company. Revenue for the full year was $125.8 billion, up 14 percent from last year, and net income was $39.2 billion, up a whopping 137 percent. Microsoft stock is up around 4 percent in after-hours trading

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The Cloud is Still Flying High

I’m starting to sound like a broken record, but once again, Microsoft’s Intelligent Cloud division was its big growth driver. Intelligent Cloud revenue was $11.4 billion, driven by a 64 percent year-on-year increase in Azure business, which is slightly down from the 73 percent Azure grew in Q3 2019. Azure’s period of wild, exponential growth may be tapering off, but it should continue to be bright spot for years to come as Microsoft locks down more long-term corporate partnerships. On that front, Microsoft recently signed a deal with AT&T, which is their biggest cloud contract yet. 

Windows, Office, and Surface Hold Steady

While Azure is still the headliner, Microsoft’s other reliable sources of income showed solid growth as well. Windows Commercial was up 18 percent year-on-year and Windows OEM was up 9 percent. Office Commercial products were up 14 percent and Office Consumer was up 6 percent, with subscriptions to Office 365 edging toward 35 million. Surface also continued to be a surprising source of strength, with revenue up 14 percent compared to Q4 2018. 

Gaming Grinds its Gears

After showing some weakness last quarter, the Xbox division took a hard tumble in Q4, with revenue down 10 percent year-on-year. Microsoft CFO Amy Hood largely attributed the poor results to slowing Xbox One sales and declining revenue from a “certain third-party title” (code for Fortnite). Things aren’t likely to get better any time terribly soon, as the Gaming division is currently in a rebuilding phase. You can expect a few more uninspiring quarters before Xbox Scarlett arrives and the xCloud game streaming service (hopefully) takes off. 

A Downpour of Cash Forecasted

As good as Q4 and fiscal year 2019 was, Microsoft is anticipating even bigger things for Q1 2020 and the full 12 months ahead. Once again, this is largely due to their cloud business, particularly as income from the company’s many long-term Azure contracts continues to roll in (the company has over $91 billion coming their way within the next couple years). There will also be a short-term boost as Microsoft cuts off support for Windows 7, finally forcing many stragglers to pony up for Windows 10. Microsoft CEO Satya Nadella explained how corporate partnerships will be driving the company going forward...

It was a record fiscal year for Microsoft, a result of our deep partnerships with leading companies in every industry. Every day we work alongside our customers to help them build their digital capability. Innovating with them, creating new businesses with them, earning their trust. This commitment to our customers’ success is resulting in larger, multi-year commercial cloud agreements and growing momentum across every layer of our technology stack.

Microsoft is expecting between $31.7 billion and $32.4 billion in revenue in Q1 2020. The way things have been going recently, expect them to easily top those numbers.

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