Microsoft Still Has Upside

According to Canalys, cloud infrastructure spend grew 46% to $80 billion in 2018. While Amazon Web Services continues to dominate the market with 31.7% share, Microsoft Azure is second with 16.8% share. Microsoft (Nasdaq: MSFT) last week announced its fourth-quarter results that blew past all market expectations and sent its valuation again into the trillion-dollar zone.

Microsoft’s Financials

Microsoft’s Q4 revenues grew 12% over the year to $33.7 billion, ahead of the market’s forecast of $32.77 billion. GAAP net income was up 49% to $13.2 billion. Adjusted EPS of $1.37 was also ahead of the Street’s expectations of $1.27.

Microsoft returned $7.7 billion to shareholders in the form of dividends and share repurchases in the fourth quarter of fiscal year 2019.

By segment, revenues in the Productivity and Business Processes grew 14% to $11 billion above the Street estimate of $10.7 billion. Within the segment, revenue from Office commercial products and cloud services increased 14% driven by 31% growth of Office 365, Office consumer products and cloud services increased 6%, Dynamics increased 12%, and LinkedIn increased 25%.

The Intelligent Cloud segment grew 19% to $11.4 billion, compared with the market’s estimates of $11.02 billion. Server products and cloud services revenue increased 22%, driven by 64% growth in Azure revenue. Enterprise Services revenue increased 4%.

The More Personal Computing segment grew 4% to $11.3 billion above the Street estimate of $10.99 billion. Revenue from Windows OEM grew 9%, Windows commercial grew 13%, Gaming declined 10%, Surface increased 14%, and Search advertising excluding traffic acquisition costs increased 9%.

For the fiscal year 2019, revenue was up 14% to $125.8 billion and net income was up 137% to $39.2 billion.

For the first quarter, Microsoft projected revenues of $31.7-$32.4 billion, versus analyst estimate of $32 billion.

Microsoft’s Acquisitions

Microsoft has made just four acquisitions this year so far, compared to ten in the first half of 2018.

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