Why Microsoft Earnings Just Keep Rocking Along

Paul Ausick

Microsoft Corp. (NASDAQ: MSFT) reported fiscal 2019 second-quarter results after markets closed Wednesday. The software behemoth reported diluted quarterly earnings per share (EPS) of $1.51 on revenues of $36.91 billion. In the same period last year, the company reported EPS of $1.08 on revenues of $32.47 billion. The consensus estimates called for EPS of $1.32 on revenues of $35.67 billion.

The Dow’s U.S. Technology Index jumped by around 47% in 2019 and Microsoft was one of two big reasons for the increase. The company’s stock added nearly 58% last year.

The company said it returned $8.5 billion to shareholders in the second quarter through a combination of share buybacks and dividend payments.

Gross margins in the quarter rose to $24.55 billion, an increase of about 26% year over year, to total just over 66% of revenue.

CEO Satya Nadella said:

We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success. Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organization can benefit.

The company’s chief financial officer, Amy Hood, added:

Strong execution from our sales teams and partners drove Commercial Cloud revenue to $12.5 billion, up 39% year over year.

Indeed. Microsoft’s commercial cloud business accounts for about a third of the quarter’s sales.

Intelligent cloud revenue rose 27% and Windows OEM revenue rose 18% on a nominal basis. The company now claims 37.2 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 62% year over year.

The company said it would provide forward guidance on its conference call. The consensus estimate for the company’s third fiscal quarter calls for EPS of $1.24 on revenues of $34.14 billion. For the full fiscal year ending in June 2020, EPS is forecast at $5.40 on revenues of $140.34 billion.

Revenue from sales of the company’s Surface rose by 6% and search advertising revenue rose 6%, excluding traffic acquisition costs.

LinkedIn revenue rose 24% year over year and Xbox content and services revenue fell by 11%.

Shares traded up about 1.9% at $171.25 in after-hours trading Wednesday. The stock closed at $168.04 in a 52-week range of $102.35 to $168.74, a new 52-week high posted today. Prior to the earnings announcement, the 12-month consensus price target on the stock was $174.56.