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MS 19Q4 Financials Offer Interesting Insights

Yesterday (July 18), MS published financial results for the fourth quarter of its 2019 fiscal year. (MS FY runs from July 1 of the preceding year to June 30 of the current year.) Those results include a variety of interesting tidbits, many of which speak to the company’s future directions and its sources of success. In this connection, it’s also worth noting that MS continues on as one of only a handful of global companies with net worth in excess of $1TRN. With revenue of $33B, and net income and operating income at $12.4B, the kids in Redmond are clearly doing all right. Examined in a bit more detail, though, MS 19Q4 financials offer interesting insights to those willing to tease them out.

As of 7/19/19, MS total market cap stands at $1.06TRN.
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Why say: MS 19Q4 Financials Offer Interesting Insights?

The subject nearest and dearest to this blog (and hopefully, its readers) is the Windows OS itself. Microsoft reports “healthy Windows 10 demand” in the Windows OEM Pro segment that resulted in 18% revenue growth. The company explained this also stems from the immanent approach of Windows 7 EOL on January 14, 2020 as well. On the other side of the Windows desktop OS street, however — the non-Pro (home user, end user, non-business user) segment of the PC market — MS reported an 8% drop in revenue. Its explanation: “continued pressure” in the entry-level computing category represents a falling tide that has dropped all prospects and activity. My own personal takeaway from this is a net positive: looks like business Windows users are finally coming aboard the Windows 10 bandwagon, and that we can expect a more orderly transition from 7 to 10 than many of us expected and feared.

Azure, of course, remains the king of the hill, and grew by 64% over the previous quarter. This produced $11.4B in revenue for the company (a 19% increase over the previous quarter). As Mehedi Hassan at observed “Azure’s 64% growth this quarter is still the lowest in recent times, declining from the 73% growth it experienced in FYQ3.” These are the kind of growth rates that most orgs can only dream about or wish for. MS continues to grapple with them, quarter after quarter. No wonder Azure increasingly steers the overall direction and organization at MS!

What About Surface and Office?

Surface revenue is up by a relatively modest 14% for $1.3B total. MS cites ongoing, strong growth in the commercial segment. Given that it’s been a year or more since the launch of any new Surface devices, or significant refreshes to existing lines, that’s not at all bad. One hopes that Microsoft has more Surface tricks up its sleeve, though, and will deign to share them with the public before calendar year 2019 ends. Not much noise in the rumor mill to that effect, though.

Office also remains a strong and meaningful component in the MS product and business portfolio. The Commercial and cloud-based Office products are up by 14% overall, with Office 365 Commercial revenue up 31%. Office Commercial (boxed Office products) are down as more and more users switch to cloud-based subscriptions instead. On the Consumer side of Office, revenue is up a relatively modest 6%. Office 365 Consumer subscribers now number nearly 35 million. LinkedIn continues up with 25% revenue growth and Dynamics 365 likewise at 45%. Even search is up, at 9%.

Good News Brings More Good News

Given these cheery results, MS tells a positive story more or less across the board. According to YCharts, the company’s net market cap stands at $1.060TRN today.

[NOTE] There’s a fascinating write-up on MS from regular Economist business columnist “Bartleby” in the July 6-12th issue. It’s entitled “Send in the clouds” and is well-worth reading. It explains the profound and surprisingly well-managed culture change at the company that’s allowed it to switch its focus from selling software licenses to things like Windows and Office to a focus on cloud-based services and offerings built around Azure. Check it out!

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