Microsoft Q1 - Azure Powering Profits

The software giant Microsoft released its September quarter earnings which were better than analyst expectations but revenue guidance was slightly lower than expected. One of the biggest contributors to Microsoft's earnings was their cloud business Azure which the company said continued to see strength as world leading companies chose Azure to build their digital capabilities.

Microsoft's first quarter revenues came in at $33.06 billion, up 14% year-on-year with net income of $10.7 billion which was up 21%. This is all thanks to Microsoft Office and Azure public cloud business. The company returned $7.9 billion to shareholders in the form of dividends and share buybacks, up 28% year-on-year.

Azure was Satya Nadella's big bet around the year 2006 which has proved itself to be fruitful as it competes head-to-head with Amazon Web Services. Today the commercial cloud business generates $11.6 billion, up 36%; where Azure revenues were up a staggering 59% year-on-year, Microsoft expects Azure to continue to grow with double digit growth which will lead to more margin expansion.

Microsoft unveiled the launch of the updated Surface Pro 7 and Surface Laptop 3 models with complete USB-C support. The company will soon be releasing the Surface Pro X next month and the Surface Earbuds later in the year in efforts to continue to control their own distribution of their services products as well as vertical integration.

Office 365 commercial revenues are up 13% year-on-year, and the company now has over 200 million Office 365 commercial subscribers which is almost a 30% jump from last years 155 million subscribers. On the consumer side, Office 365 has 35.6 million subscribers up from 32.5 million last year. Many of these users enjoy the Microsoft integration between Outlook, Office 365, and Azure.

I believe the company still has a lot of growth potential on Office 365 as well as on the cloud business both for commercial and consumer use. The integration across the Microsoft ecosystem makes it very easy for users to manage their projects and it is a very good selling point as the ecosystem becomes more important as more people use it.