Originally published by Sramana Mitra on LinkedIn: Microsoft Rallies On Cloud

Microsoft appears to be on a roll, finally. The recent result announcement earlier this week, sent the stock soaring close to its 52-week high levels. The company surpassed analyst expectations, primarily driven by the growth in its cloud business. According to a Gartner report published earlier this year, the global market for cloud system infrastructure is projected to grow to $22.4 billion this year and Microsoft is making sure it has a big chunk of the market.

Microsoft's Financials

Microsoft's Q4 revenues grew 0.4% over the year to $22.6 billion, ahead of the market's forecast of $22.1 billion. EPS of $0.69 was also ahead of the Street's expectations of $0.58 for the quarter.

By segment, revenues from the Productivity and Business Processes grew 5% over the year to $7 billion. Revenues in the Intelligent Cloud segment grew 7% over the year to $6.7 billion. Revenues from the Personal Computing segment fell 4% over the year to $8.9 while Surface revenues grew 9% over the year. Gaming revenues fell 8% despite Xbox Live monthly active users growing 33% to 49 million. Phone revenue was down 35% and Search ex-Traffic Acquisition Cost revenues grew 16% over the year.

For the year, revenues fell 9% over the year to $85.3 million on a GAAP basis. Net income grew 38% over the year to $16.8 billion. EPS grew from $2.10 a year ago to $2.79.

Microsoft's Focus

While Amazon's AWS may be the market leader within cloud service providers, Microsoft is also making its presence felt. During the previous quarter, Microsoft's Azure cloud services division grew 102% over the year. Its commercial cloud segment, which includes computing infrastructure and product lines including Office 360 brought in $12.1 billion in revenues during the quarter. A year ago, that number stood at $8.1 billion. Microsoft still does not break out the revenues for Azure separately.

A survey by Morgan Stanley released earlier this month also spells positive news for Azure. According to the international survey of 100 CIOs, Microsoft's Azure will become the preferred cloud service for both Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) by 2019. The survey revealed that by 2019, 31% of the CIOs will be using Azure for IaaS, compared with 30% using AWS. Currently, that ratio stands at 12% for Azure and 21% for AWS.

Last quarter, Microsoft also made its biggest ever acquisition - that of LinkedIn for $26.2 billion. Microsoft plans to leverage the acquisition to transform productivity and business processes especially within the Office 365 segment. Microsoft believes that the integration of LinkedIn and Office 365 will help create new revenue opportunities for it in the form of subscriptions and advertising revenues. But, I think there is a bigger potential if Microsoft were to leverage LinkedIn's incredible network by making them a cloud services vendor, especially with an anchor position in CRM and related products.

Within collaboration, the company recently launched new products including Microsoft Planner and Skype Meetings to help small businesses collaborate. In the mobile segment, the company introduced Dynamics 365 and Microsoft AppSource. Dynamics 365 provides organizations with access to purpose-built SaaS applications that are integrated with Office 365, Power BI and Cortana intelligence to deliver collaboration and predictive capabilities. Dynamics 365 evolves its CRM and ERP cloud solutions into a single cloud service that will help organizations manage business functions, including financials, sales, operations, marketing and customer service.

Microsoft AppSource is its new marketplace for business users to find line-of-business SaaS apps from Microsoft and its partners. At the time of its launch, AppSource included more than 200 business SaaS apps, add-ins and content packs. The AppSource and Dynamics 365 will also benefit from the LinkedIn acquisition as it will help connect the professional network with the professional cloud services.

And finally, within the Surface segment, Microsoft recently announced a new partnership with IBM. Thepartnership is similar to what IBM has with Apple and allows Microsoft and IBM to jointly develop new business applications for the Microsoft Surface tablets and Surface Book laptops for the enterprise customers. Initially, the partnership will focus on providing apps for financial services and packaged consumer goods. Last year, Microsoft had entered into a similar agreement with Dell. The move will help Microsoft push its Surface devices within the enterprise segment.

Its stock is currently trading at $55.8 with a market capitalization of $438.6 billion. It touched a 52-week high of $56.85 in December last year. The stock has recovered from the 52-week low of $39.72 it had crashed to in August last year.

 

Published on: Jul 28, 2016