Cloud Services Continue To Boost Microsoft’s Revenues

by Trefis Team
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Microsoft (NASDAQ:MSFT) announced its earnings for its fiscal Q2 on January 31. The company posted 12% year-over-year growth in revenues to $28.9 billion. However, its provisions for income tax related to the tax cut and job act (TCJA) impacted profitability as the company set aside $15.5 billion for taxes during the quarter. Nevertheless, the growth in revenues from cloud services continued to boost the top line. The highlights from the earnings announcement are below.

Segment Overviews

Productivity and Business Processes revenues grew by 25% to $8.95 billion, driven in part by 10% growth in Office commercial product, which grew due to Office 365 commercial revenue growth of 41%. Intelligent Cloud revenue grew by 15% to $7.79 billion, due to 19% growth in Server products and Cloud services, driven by growth in Azure revenue. Meanwhile, Enterprise Services revenue increased by 5%

Personal Computing revenues grew by 2% y-o-y to $12.17 billion. Some revenue drivers for the vertical were 4% growth in Windows OEM revenue, and 15% growth in search advertising revenues, driven by higher revenue per search and search volume. Surface revenue increased by 1% as sales of new Surface devices gained some traction in the quarter. Meanwhile, strength in Xbox software and services (21% growth) offset lower hardware revenue and drove gaming revenues 1% higher.

Other Key Takeaways

Cloud services continued to boost Office revenues, as revenues grew by nearly 10% to $7 billion. LinkedIn revenues grew by 475% to $1.3 billion. Microsoft continues to build its platform that tightly integrates LinkedIn and Dynamic. This integration should not only provide a credible cloud-based CRM software to develop a cross-selling platform, but also add a talent marketplace solution to Microsoft’s portfolio of products.

Windows continues to outperform the PC market, as OEM Pro revenue grew 7%. With many OEMs coming out with new Windows hardware, Windows sales are expected to continue to outperform PC sales. While devices revenues declined by 18% y-o-y to $1.48 billion, surface revenues improved by 1% to $1.34 billion.

We have created an interactive dashboard that outlines Microsoft’s Q2 results. You can view how different product lines performed during Q2 here Our $87 price estimate for Microsoft is below the current market price.

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