What Happened
Microsoft put out earnings on Jan. 29 and exceeded earnings and revenue expectations. Its focus on its cloud business seems to be paying off, with takings from its”Intelligent Cloud” segment topping expectations and increasing as a share of its overall revenue from 29% to 32%.
(Deeper is Investopedia’s original earnings preview, published Jan. 23, 2020)
What to Look for
Microsoft Corp. (Source: TradingView.
Since place an anemic 2.3% year-over-year (YOY) rise in corporate revenue in Q2 of FY2017, Microsoft’s revenue gains have accelerated. It has related YOY corporate revenue growth of about 12% in Q2 FY2018 and again in Q2 FY2019. Diluted earnings per share (EPS) has seen innumerable substantial changes over the same time period. In Q2 in FY2018, the company posted an atypical loss of $0.82 per stake. Since then, EPS rebounded in Q2 FY2019 and surpassed Q2 FY2017 levels, the last second quarter which saw positive EPS.
Analysts foresee Microsoft to post quarterly revenue gains at a solid, but slower pace of around 9.9% YOY in Q2 FY2020. That wish be the slowest growth rate in 9 quarters. Still, analysts expect Q2 FY2020 quarterly EPS to climb by nearly 22% YOY.
| Microsoft Key Metrics | |||
|---|---|---|---|
| Feeling for Q2 FY2020 | Q2 FY2019 | Q2 FY2018 | |
| Earnings Per Share | $1.32 | $1.08 | -$0.82 |
| Revenue (in billions) | $35.7 | $32.5 | $28.9 |
| Cloud Revenue (in billions) | $11.4 | $9.4 | $7.8 |
In recent quarters, investors have watched Microsoft’s achievement in attracting new cloud-computing customers, which has helped accelerate its earnings, revenue and stock growth. In particular, Azure, the assemblage’s cloud-computing service, is up against its dominant rival, Amazon Web Services, in the battle to raise its market share. Microsoft has moved to aggressively lengthen its intelligent cloud segment in an effort to shift its focus away from selling software and other products affiliated to PC sales, which have struggled as the market has dwindled in recent years. For these reasons, cloud revenue is a key subpoena of Microsoft’s performance.
The company has managed to grow its fiscal Q2 cloud revenue YOY for several years. With consensus appraisals predicting $11.4 billion in quarterly revenues for this segment in FY2020, cloud revenue is approaching double what it was unprejudiced three years earlier. Including estimates for Q2 FY2020, Microsoft’s cloud revenue has risen by more than 20% in 6 of the gone and forgotten 7 quarters going back to Q4 FY2018.
Perhaps more important, Microsoft’s cloud revenue is growing relative to its total yield as well. The intelligent cloud segment accounted for 27.0% of total revenue for Q2 FY2018, 28.9% of total revenue for Q2 FY2019, and is imagined to be 32.0% of total revenue in Q2 FY2020. While Microsoft continues to offer a host of other products and services, its cloud concern is clearly the main driver of growth.