Microsoft Inc. MSFT reported blowout numbers for first-quarter 2019 on Wednesday, with both revenue and earnings per share beating estimates. Net income was $8.82 billion, or earnings of $1.14 per share, topping the 96 cents analysts were expecting. Revenue climbed 19% to $29.1 billion, higher than the street estimate of $27.9 billion.
The Washington-based company witnessed growth in all of its segments, with sales in the Intelligent Cloud division growing 24% to $8.6 billion, driven by Azure. Microsoft's productivity and business unit, which includes Office 365, witnessed a 19% increase in sales to $9.8 billion and the user base grew to 155 million active users, with 32.5 million consumer subscribers. Personal computing revenues, which include Xbox consoles, saw sales jump 15% to $10.7 billion.
“We saw strength across each of our segments with strong sales execution by our partners and sales teams," Chief Financial Officer Amy Hood said on a conference call. "Customer demand for our hybrid and cloud offerings drove the quarter and we continued to benefit from favorable macroeconomic and IT spending trends.”
Microsoft also noted that commercial cloud sales increased 47% to $8.5 billion. As the industry landscape changes and cloud demand shoots up, the company plans to embrace the change and invest more in data centers to cater to the growing pool of customers. As a result, an increase in capital expenditures this year should not come as a surprise to anyone.
Another major highlight is Microsoft’s recent demand from the hybrid cloud. This essentially lets enterprises use a single set of tools to manage what they store on their personal servers and on shared space in the cloud. It will also organically drive demand for Windows Server, SQL databases and Azure.
“It’s really customer-friendly,” Hood said. “They can move to Azure on their terms, their timing and at attractive pricing.”
Another hot topic of debate on the street is whether Microsoft will cross Amazon’s AMZN market cap. A tech selloff in October severely impacted the market cap of Amazon, which briefly touched the $1 trillion mark earlier in September. At the time of writing, Microsoft was the world’s second-most valuable company due to Amazon’s disappointing earnings results.
In regard to valuation, Microsoft currently floats a forward price-earnings ratio of 25.06, which is slightly above the industry median of 25. Given the company's financial and fundamental strength, however, the stock has further upside potential. It currently has an operating margin of 32.47% compared with the industry median of 5.13%.
Additionally, the company’s three-year revenue growth rate of 7.7% and three-year EBITDA growth rate of 27.5% are well above the industry median of 6% and 8.9%.
All told, Microsoft’s positioning in the current industry landscape dictates a bullish outlook for the stock. With cloud computing becoming the next big thing and Microsoft’s expertise in that segment, we might see the tech giant battle it out with Amazon for a leading position among the most valuable stocks for the near future.
Disclosure: I do not own any of the stocks mentioned.
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