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Microsoft (NASDAQ: MSFT) was on a roll, to say the least. This was particularly evident in the Company's third quarter financial results, which included adjusted earnings and earnings per share that exceeded analysts' estimates for the quarter. Revenues during the period jumped 14% over the prior year, adjusted earnings per share rising to $ 1.14, easily exceeding the average analyst estimate at 1 , 00 USD.
contrary to Apple, whose activities are easy to understand and rely on only a few lines of products, as well as a simple service segment, Microsoft's business is more complex and offers a wide range of products and services designed to consumers and businesses. This means that investors have every incentive to invest additional time in analyzing many aspects of the software giant's activities. Calls to Microsoft results are a starting point.
When calling the company's third-quarter fiscal results, Microsoft's management provided a lot of interesting information about its business, but these four quotes stand out.
Microsoft CEO Satya Nadella. Source of the image: Microsoft.
Success in the game as a service
As part of Microsoft's transformation into a cloud-based company, Microsoft has made its games online and makes them available through subscriptions. The company calls its gaming revenue online its revenue from Xbox software and services – and it was the main driver of Microsoft's overall business for the third quarter, management said. In addition, revenues from these software and services are growing at a nice double-digit rate.
"Xbox software and services revenues grew by 12% and 15% in constant currency, thanks to steady growth in the number of Xbox LIVE and Game Pass subscribers," said Amy Hood, Microsoft's chief financial officer.
LinkedIn continues to flourish
Since the acquisition of LinkedIn in 2016, this purchase has proven to be a resounding success for Microsoft. And that continues to be the case, according to Microsoft CEO Satya Nadella. "LinkedIn has once again exceeded the expectations of all business sectors, thanks to record levels of engagement in the wire, shared content on the platform, [and] messages sent this quarter, "said the CEO.
It should be noted that the social network for professionals saw its revenue from marketing solutions increase by 46% over the previous year, and job offers reached a record high in the third quarter.
Improvement of the gross margin of the commercial cloud
Microsoft's professional cloud business, which includes revenues from Office 365 Commercial, Azure, and Dynamics 365, grew 41 percent year-over-year to $ 9.6 billion in the quarter. The improvement of the profitability of the sector is however still more impressive.
"The percentage of the commercial cloud gross margin has increased 5 points year-on-year, to reach 63%, thanks to the marked improvement in Azure gross margin," said Hood.
Great opportunity for Office 365
Office 365 Commercial continues to be a key catalyst for Microsoft, with revenue generated by the cloud-based subscription product growing 30% over the previous year. When asked during the call, while there was still a significant room for growth, Nadella responded with optimism.
"In terms of the overall reach of Office 365, we continue to see significant opportunities in the future on many fronts," said the CEO. Specifically, he stated that the software model as an Office service had opened the product to more small and medium-sized businesses with sophisticated workloads, or what Nadella calls it: the non-developed market. Second, the company is reaching more front-line workers because of non-core solutions such as messaging and business process processes. Finally, the CEO said that it was possible for incentive customers to increase the price of Office 365 Commercial levels.
The three catalysts of Microsoft's business – software and services Xbox, LinkedIn and Office 365 Commercial – show no signs of slowing down.
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