Software and cloud giant’s valuation touches $1 trillion on strong quarterly earnings and bright growth forecast in cloud market
Microsoft briefly became a trillion-dollar company, by market valuation, after releasing third-quarter financial results that beat market expectations and showed sustained — albeit slowing — growth in cloud computing. Much of the success is based on Microsoft’s broadened partnership strategy.
The Lowdown: In almost every division, commercial and consumer, Microsoft posted quarterly revenue gains. Microsoft’s overall revenue for its third quarter, which ended March 31, was $30.6 billion — up 14% over the same quarter in 2018. Quarterly net income also increased, by 19% to $8.8 billion. Market analysts expected Microsoft to post revenue of $29.8 billion.
The Details: Nearly all of Microsoft’s divisions posted healthy to strong revenue increases.
The Intelligent Cloud division saw its sales tally $9.7 billion — up 22% year over year, including 73% growth in Microsoft Azure sales, a 27% increase in server products and cloud services, and a 4% increase in enterprise services.
The Productivity and Business Process division rang up $10.2 billion in sales — up 14%, with Office Commercial products up 12% and Commercial Office 365 — a cloud product sold largely through channel partners — up 30%. Microsoft Dynamics sales increased 13%, again driven largely by a 43% increase in the cloud-connected version, Dynamics 365.
The Personal Computing division, which includes Windows products and OEM sales, posted revenue of $10.7 billion — up 8%. Windows OEM sales increased 8% and Windows Commercial products were up 18%. Sales of Surface computing and tablet products were up 21%. Personal Computing saw a rebound from a 5% decline in the previous quarter as the Intel processor inventory shortage recovered faster than expected and the Windows 7 end of life causes businesses to upgrade their PC fleets.
The Impact: While Microsoft posted strong revenue and profit gains in its third quarter, some of the growth numbers are slipping slightly. The company says it expects to see cloud expansion to continue at a strong double-digit rate, but the growth rate will erode over time due to the law of large numbers — the bigger the business, the slower and harder the growth.
The Buzz: “Leading organizations of every size in every industry trust the Microsoft cloud. We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow,” said Satya Nadella, CEO of Microsoft.
“Demand for our cloud offerings drove commercial cloud revenue to $9.6 billion this quarter, up 41% year-over-year,” said Amy Hood, executive vice president and CFO of Microsoft. “We continue to drive growth in revenue and operating income with consistent execution from our sales teams and partners and targeted strategic investments.”
Channelnomics Point of View: Over the past five years under Nadella’s leadership, Microsoft changed its go-to-market philosophy from market dominance to market inclusion. Rather than trying to own the totality of every market it touches, Microsoft simply wants to play and support various market segments. Consequently, it’s become friendlier and more collaborative with partners and competitors. The result is the steamroller growth demonstrated in the latest quarter financials. Microsoft is reinventing the definition of success through partnership.