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Cloud Stocks: Microsoft Rides High on Teams and Gaming

Posted on Friday, Jul 24th 2020

Earlier this week, Microsoft (NASDAQ: MSFT) reported its fiscal fourth quarter results that surpassed all market expectations. Growth in Teams, Cloud, and Gaming segments helped drive growth for the quarter. But the market was not too impressed as Cloud revenue growth was slower than expected.

Microsoft’s Financials

Fourth quarter revenues grew 13% to $38 billion, significantly ahead of the market’s forecast of $36.5 billion. EPS fell 15% to $1.46 as the company continued to invest in cloud technologies. The market was looking for an EPS of $1.38.

By segment, revenues from Productivity and Business Processes grew 6% to $11.8 billion driven by 5% increase in Office Commercial products and cloud services revenue. Office 365 Commercial revenue grew 19% over the year. Revenue in Intelligent Cloud improved 17% to $13.4 billion driven by a 19% increase in Server products and cloud services revenue. Azure’s revenues grew 47% over the year in the quarter. Revenue from More Personal Computing grew 14% to $12.9 billion with Windows OEM revenue growing 7% over the year. Xbox content and services revenue increased 65% as more locked down users accessed the gaming console.

Despite the impressive results, the market was not very impressed. Azure revenues grew 47% in the quarter, missing expectations of 49% growth and significantly lower than the 59% growth reported a quarter ago.

Microsoft ended the fiscal year 2020 with revenues of $143 billion, up 14% and net income of $44.3 billion, up 13%.

For the first quarter, Microsoft forecast revenues of $36.1 billion. The market was looking for earnings of $1.48 per share on revenues of $35.9 billion for the Q1 2021 and earnings of $6.24 on revenues of $155.5 billion for fiscal year 2021.

Microsoft’s Growth Areas

Microsoft continues to drive growth in Azure and the hybrid environment. It is accelerating its innovation to meet customers’ needs. Azure Arc was released to be the first control plane built for a multi-cloud, multi-edge world. They are expanding its capabilities by adding Azure Arc-enabled Kubernetes. The new capabilities in Azure Stack HCI will allow organizations to bring the cloud to their very own datacenters.

It continues to add new capabilities in Azure Cognitive Services that make it easier to build applications that speak naturally in 49 languages and variants. The Cognitive solution is able to generate insights from unstructured data including the information provided in paper-based forms and medical records. With Azure Machine Learning, it is enabling organizations to deploy AI more responsibly and safely.

Within its Power Platform, Microsoft is enabling anyone in the organization to rapidly create an application, build a virtual agent, automate a workflow, or analyze data. Non-technical developers and business decision makers can now use the Power Platform to create queries and get data insight. According to recent reports, 96% of the Fortune 500 now use Power BI to find insights in their data. It continues to drive usage of the platform by adding new capabilities. For instance, it recently added an end-to-end return to the workplace solution in Power Platform that will allow organizations to keep employees safe and healthy when they go back to the office.

The global conditions have spurred the usage of digital collaboration tools and Microsoft is clearly benefitting from that growth. For instance, Microsoft Teams is helping people work together by providing an integrated experience for meetings, calls, chat, content collaboration, and business process workflows.

Microsoft recently added new capabilities like Together Mode and Dynamic Stage within meetings to help teams feel more connected. It expanded the gallery view in Teams so that people can now interact with up to 49 participants at a time. It introduced Breakout Rooms and Live Reactions to help people connect with each other better even when working remote. Teams is a rapidly growing application that generated more than 5 billion meeting minutes in a single day this quarter. 69 organizations now have more than 100,000 users of Teams, and more than 1,800 organizations have more than ten thousand users of Teams.

Microsoft continues to work on expanding Teams beyond the workplace and has simplified the process of adding a personal Teams account on mobile so that users can stay connected with friends and family across work and life. It is also working with educational institutions to help them prepare for remote, and blended in-person scenarios using solutions like Teams.

Microsoft is also verticalizing its cloud, and the new Microsoft Cloud for Healthcare is helping providers schedule, manage, and conduct virtual visits using Teams and engage with patients using Dynamics 365. Within the vertical, there were more than 46 million Teams meetings in June alone.

Xbox also had a record quarter. Xbox Game Pass had record subscriber growth across both console and PC. It is expanding xCloud to Xbox Game Pass, so that subscribers can stream games to a phone or tablet and play along with over 100 million Xbox Live players around the world. Microsoft is working on launching Xbox Series X this fall which is expected to have the largest launch lineup for any console ever.

Its stock is trading at $202.54 with a market capitalization of $1.54 trillion. It had climbed to a record high of $216.38 earlier this month. It hit a 52-week low of $130.78 in March this year.

This segment is a part in the series : Cloud Stocks


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