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Microsoft Soaring to All Time Highs

Posted on Tuesday, Jul 24th 2018

Of late, the market has been very pleased with Microsoft (Nasdaq: MSFT) as it delivered stellar results for the fourth quarter. Better than expected outlook for the company helped drive its stock to an all time high. And, it was not just one segment driving the performance. Microsoft managed to deliver on all grounds. Well done, Mr. Nadella. Many believe that the company is headed to become a trillion dollar giant fairly soon.

Microsoft’s Financials

Microsoft’s Q4 revenues grew 17% over the year to $30.1 billion, ahead of the market’s forecast of $29.21 billion. EPS of $1.14 was also ahead of the Street’s expectations of $1.07 for the quarter.

By segment, Productivity and Business Processes revenues grew 13% to $9.7 billion driven by a 10% growth in Office commercial products and cloud services revenue. Within the segment, Office consumer products and cloud services revenue increased 8% and Office 365 consumer subscribers increased to 31.4 million. LinkedIn revenues grew 37% and Dynamics products and cloud services revenue increased 11% over the year.

Revenue in Intelligent Cloud grew 23% to $9.6 billion with Server products and cloud services revenue growing 26% and Enterprise Services revenue increasing 8%. Azure revenues were up 89% over the year.

Revenue in More Personal Computing segment increased 17% to $10.8 billion with Windows OEM revenues growing 7% and Windows commercial products and cloud services revenue increasing 23% over the year. Gaming revenues increased 39% and Surface revenue increased 25%.

Microsoft ended the year with revenues growing 14% to $110.4 billion and a net income of $16.6 billion on a GAAP basis. On an Non-GAAP basis, income came in at $30.3 billion or $3.88 per share. This was the first time ever that Microsoft crossed the $100 billion annual revenue threshold.

During the quarter, Microsoft returned $5.3 billion to shareholders in the form of dividends and share repurchases.

Microsoft’s Acquisitions

During the quarter, Microsoft continued making several acquisitions. The biggest news was the $7.5 billion acquisition of GitHub, the Git-based code sharing and collaboration service. GitHub is known for its code repository that can host entire projects, documentation, and code. Its service is used by big names including Apple, Amazon, and Google. GitHub boasts of 85 million repositories and has 28 million developers contributing to its library. Till December 2017, Microsoft had its own GitHub competitor, Codeplex. It stopped Codeplex in December and instead focused on becoming the top contributors to GitHub. Currently, Microsoft has more than 1,000 employees pushing code to GitHub repositories. Microsoft plans to leverage the GitHub acquisition to make it a go to place for projects and source control.

More recently, the company announced the acquisition of Bonsai to drive growth in the AI world. Analysts estimate that autonomous systems globally would have grown to 800 million units by 2025. To drive the AI technology for these autonomous systems, Microsoft acquired Berkeley-based Bonsai. Bonsai has developed machine teaching capabilities that abstracts the low-level mechanics of machine learning so that subject matter experts, regardless of their AI capabilities, can specify and train autonomous systems to accomplish tasks. Microsoft plans to integrate Bonsai’s platform with simulation tools and reinforcement learning in Microsoft Research to make it a simple, yet rich AI toolchain for building any kind of autonomous system. Terms of the acquisition were not disclosed.

The market is very pleased with Microsoft. Its stock is currently trading at $106.27 with a market capitalization of $816.5 billion. It had climbed to an all time high of $108.20 in the after hours trading session post result announcement. The stock has climbed steadily from the 52-week low of $71.28 that it was trading at in August last year.

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