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Microsoft Stronger than Ever

Posted on Friday, May 1st 2020

Even amid the recent global turmoil, tech giant Microsoft (Nasdaq: MSFT) appears unfazed. The company recently reported its third quarter results that continued to outpace market expectations. Its stock climbed 2% in the after-hours session. Despite the market turmoil this year, Microsoft’s stock has gained 12% since the start of the year.

Microsoft’s Financials

Microsoft’s revenues grew 15% to $35 billion, significantly ahead of the market’s forecast of $33.66 billion. Non GAAP net income was $10.75 billion, or $1.40 per share, which was also ahead of the Street’s forecast of $1.26 per share. Prior to the Covid impact, analysts had forecast revenues of $34.55 billion with an EPS of $1.33 for the quarter. Microsoft’s results exceeded those expectations as well.

Microsoft admitted that the reported quarter had minimal impact of the virus for most of the business. It did see some impact in the advertising, LinkedIn, and Bing segments towards the end of the quarter.

For the quarter, revenues from the Intelligent Cloud segment that includes Azure grew 27% to $12.28 billion compared with the market’s forecast of $11.79 billion. Azure sales grew 59% over the year. Productivity & Business Solutions revenues that include cloud software assets such as LinkedIn grew 15% to $11.52 billion, again ahead of the analyst predictions of $11.53 billion. More Personal Computing that includes Windows, Xbox and Surface revenues grew from $10.68 billion last year to $11 billion, and was ahead of the Street’s forecast of $10.46 billion.

For the fourth quarter, Microsoft forecast revenues of $35.85-$36.8 billion, compared with the market’s forecast of revenues of $36.52 billion.

Microsoft’s Growth Areas

Analysts expect that the current work-at-home conditions will help drive growth for Microsoft’s Azure cloud-computing business and Teams collaboration software. Within Azure, the company has been adding several new features and enhancements.

Earlier this week, Microsoft announced the general availability of snapshot management for Azure Files by Azure Backup. Besides being available natively in the cloud, Azure Backup will help protect file shares using Recovery Services vault. Users will be able to use the +Backup option from Recovery Services vault to discover unprotected file shares in storage accounts, select multiple file shares if necessary, choose a policy, and configure backup for all file shares at once. Being an Azure native solution, Azure Backup would not require any additional compute and will save the organization from setting up additional infrastructure.

Earlier in the month, Microsoft announced the general availability of Windows Server container support on Azure Kubernetes Service (AKS). AKS will simplify the deployment and management of Kubernetes clusters to deliver a reliable and available environment for applications. By integrating development tools such as GitHub and Visual Studio Code with Microsoft security expertise, the solution will offer organizations the ability to lift and shift their Windows applications to run on managed Kubernetes service with Azure. They will be able to create, upgrade, and scale Windows node pools in AKS through the standard tools and leverage Azure to manage the health of the cluster automatically.

It also announced the general availability of both private clusters and managed identities support in AKS that will empower organizations to achieve security and compliance requirements with minimal efforts. Private clusters ensure that customers can create and use managed Kubernetes that exists only inside their private network and never on the internet.

Besides the cloud, Microsoft is also gaining ground on its collaboration tools. The coronavirus lockdown has helped it grow Microsoft Teams offering which now has more than 75 million daily active users. Six weeks ago, that number stood at 44 million daily active users. More than 200 million meeting participants used Teams in a single day this month, clocking over 4.1 billion meeting minutes.

Microsoft is working on releasing Teams for Consumers, an application focused on individual users. Teams for Consumers will help users plan trips, neighborhood gatherings, book club meetings, and other social events. Consumers will be able to share photos and videos in a group chat and make video calls, collaborate over shared to-do lists, assign tasks to specific people, and coordinate schedules. The product is scheduled to be launched this Fall. It is expected to be available for free to start with. Premium features will be available as a part of the $6.99 per month Microsoft 365 personal package.

Its stock is trading at $179.21 with a market capitalization of $1.35 trillion. It had climbed to a record high of $190.70 in February this year. It hit a 52-week low of $119.01 in May last year. The recent market turmoil had sent the stock falling to $137.35, but it has made a quick recovery over the last month.

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