What To Expect From Microsoft’s 2019 After A Strong End To Fiscal 2018

by Trefis Team
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Microsoft (NASDAQ:MSFT) announced its Q4 fiscal 2018 earnings on July 19, reporting a 17% increase in net revenues to $30.1 billion. The company has reported strong revenue growth from non-computing revenue streams over the last couple of years. This trend continued through fiscal 2018, with 19% revenue growth for non-computing revenue streams to $68.1 billion. Moreover, the trend reversed for the More Personal Computing segment, with an 8% y-o-y increase in revenues to $42.3 billion, which resulted in net revenue growth of 14% to over $110 billion for year.

Additionally, Microsoft’s reported non-GAAP margin improved from around 30.3% in FY 2016 and FY 2017 to 31.8% in FY 2018. The improvement in operating profit margin can be attributed largely to improving gross margins in the Personal Computing segment. Resulting net income and EPS were up by 17-18% over previous year levels to $30 billion and $3.88, respectively.

What To Expect In Fiscal 2019

We expect the aforementioned trend to continue in the coming quarters of fiscal 2019, with net revenues expected to increase in high single digits for the full year. We expect Productivity and Business Processes revenues to continue to increase in the teens to over $40 billion through FY’19. We further expect Intelligent Cloud revenues to increase in the high single digits to over $34 billion for the current fiscal year. Comparatively, More Personal Computing revenue growth is forecast to slow down somewhat owing to the cyclical nature of product sales in the segment. FY’18 was a particularly strong year due to the strong demand for Windows commercial, OEM Pro, and Surface. We expect demand to slow down slightly through FY’19. We forecast operating profit margins to improve by 20-30 basis points leading to a 7-8% increase in net income and EPS. We have summarized our FY’19 expectations on our interactive Microsoft earnings dashboard, where you can modify assumptions such as changes in expected segment revenue or margins to see how they impact the company’s expected EPS for the full year.

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