Q4- The Cloud and Gaming on The Surface

Microsoft released a strong set of quarterly numbers yesterday, beating on both revenue and profit expectations. The last three months have been the toughest for most businesses as they had to operate amid the economic downturn brought to us by the Covid-19 pandemic. Microsoft has benefitted enormously from us working from home and our need for home entertainment.

The Redmond, Washington based software giant saw its revenues for the quarter rise by 13% to $38 billion, helping it generate a net profit of $11.2 billion. The cloud business Azure grew revenues by 47%, a slowdown as compared to the previous periods where it grew by 59% and 64% a year before that. As a business gets larger, the rate of growth naturally slows.

The overall Intelligent Cloud business (which includes Azure), grew revenues by 17% to $13.4 billion for the quarter. According to the CFO Amy Hood, the commercial cloud business surpassed $50 billion in annual revenues for the first time.

Microsoft Surface revenues were up almost 30% for the quarter while Xbox content and service revenues surged by 65%. These two aren't as big as the money printer Azure, but the growth has been significant. They also have the lockdowns to thank, as more people subscribed to things like Xbox Live and other digital content.

I can't write about Microsoft without talking about their Teams application. Microsoft Teams is doing so well that its competitor Slack has filed an antitrust complaint against Microsoft in the European Union accusing the software giant of abusing its dominance to snuff out competition by integrating Teams into the Microsoft Office productivity suite. Put differently, Slack is a cry baby because it doesn't have its own video-conferencing software and instead of going back to the drawing board, they decided to go crying to mommy EU.

The CEO of Microsoft, Satya Nadella said "The last five months have made it clear that tech intensity is the key to business resilience. Organisations that build their own digital capability will recover faster and emerge from this crisis stronger," We've seen how all businesses, regardless of size have had to adapt to this new normal of working-from-home.

Microsoft has performed handsomely this year, up 34% while the Dow is only up 5%. It's still the second biggest listed company, behind only Apple. The business continues to invest back into its cloud capacity while allowing flexible financing options for struggling businesses during the pandemic. We like Microsoft here at Vestact and we believe it should form part of your core holdings in your offshore portfolio.