Cloud Computing, steady growth – Motley's fool

Microsoft (NASDAQ: MSFT) On Thursday, it became the third publicly traded US company to reach the benchmark of $ 1 trillion in market capitalization, after posting a solid quarter earlier this week. In August 2018, Apple (NASDAQ: AAPL) first took the limelight for the achievement of this feat, followed by Amazon (NASDAQ: AMZN) in September.

Neither Apple nor Amazon have been able to stay long above the $ 1 trillion threshold, and Microsoft has finally fallen below the threshold over the course of the day. But it's worth considering what helped Microsoft to reach these dizzying heights.

Head in the clouds

Over the last three years, Microsoft stock has risen by more than 150%, compared to a 40% gain in S & P 500. A number of factors have contributed to the historical growth of the company.

The company's Windows operating system, its suite of Office productivity software, and its growing success in cloud computing are at the forefront. And this is the relatively new surge in cloud computing that is generating the most enthusiasm among investors.

Although Amazon is still the leader in cloud computing with Amazon Web Services (AWS), Microsoft's Azure is gradually gaining market share. In 2018, AWS generated a business turnover of $ 25.6 billion, up 47% from 2017. Microsoft does not divide the revenues of its cloud computing unit, but has announced this week that Azure's revenue had risen 73% over its third fiscal quarter. In the previous three quarters, earnings were 89%, 76% and 76%, respectively. Microsoft's "business cloud," which includes revenues from Azure, Office 365, Dynamics 365, and LinkedIn Business, reached $ 9.6 billion in the third quarter, up 41 percent from year-over-year former.

That's not all that makes investors optimistic. The company's generous return on capital policy has been a boon for shareholders. At the end of last year, Microsoft had increased its dividend by 9.5% to $ 0.46, which was the ninth increase in as many years; the company increased its payments by 254% over this period. It has also bought back shares and, over the past decade, has seen its share reduced by more than 13%.

A push up

It's not just cloud computing that has propelled Microsoft higher. The company has experienced a kind of renaissance and its recent financial results speak volumes. For its third fiscal quarter, the group posted sales of $ 30.6 billion, up 14% over the previous year, with solid gains in each of its main operating segments. Operating profit rose 25%, giving EPS of $ 1.14.

At the same time, LinkedIn's revenues increased by 27%, while Surface IT products grew by 21%, both from one year to the next. Even the company's traditional software segments recorded strong growth, with the commercial and consumer versions of Office increasing by 12% and 8% respectively.

What does this mean for the future of Microsoft?

It turns out that the factors that drove Microsoft's shared actions – consistent growth in revenue and profitability, cloud computing gains, and generous capital returns – are the same as those that make it so. an attractive investment.

It is important to note that the $ 1 trillion reference value of market capitalization is completely arbitrary; companies earn nothing other than bragging rights and potentially a footnote. But the strength of Microsoft's underlying business will likely reward shareholders for years to come.