Microsoft Earnings Soar With the Clouds

Microsoft Corp. (NASDAQ: MSFT) reported fiscal fourth-quarter and full-year 2018 results after markets closed Thursday. The software behemoth posted adjusted diluted quarterly earnings per share (EPS) of $1.13 on revenues of $30.1 billion. In the same period of last year, the company reported EPS of $1.06 on revenues of $25.6 billion. The consensus estimates had called for EPS of $1.08 on revenues of $29.2 billion in the most recent quarter.

For the full year, Microsoft reported revenues of $110.36 billion and adjusted EPS of $3.88, compared to revenues of $96.57 billion and EPS of $3.29 in the 2017 fiscal year. This is the first time the company has reported fiscal year revenues of more than $100 billion.

Gross margins in the quarter rose to $20.34 billion, nearly 19% year over year, to total just over 67% of revenue.

CEO Satya Nadella said:

We had an incredible year, surpassing $100 billion in revenue as a result of our teams’ relentless focus on customer success and the trust customers are placing in Microsoft. Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation.

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The company’s chief financial officer, Amy Hood, added:

Exceptional sales execution delivered double-digit revenue growth across all segments and strong progress against our strategic priorities, anchored by commercial cloud revenue growing 53% year-over-year to $6.9 billion.

Intelligent cloud revenue rose 23% and Windows OEM revenue rose 7%, both nominally and in constant currency. The company now claims 31.4 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 89% year over year.

And on the conference call, Microsoft guided first-quarter revenue of $27.35 billion to $28.05 billion. The company sees its server products and cloud services revenue growing in the high teens for the 2019 fiscal year. In its productivity and business processes segment, Microsoft forecast double-digit revenue growth.

The consensus estimate for the company’s first fiscal quarter calls for EPS of $0.91 on revenues of $27.38 billion. For the full fiscal year ending in June 2019, EPS is forecast at $4.01 on revenues of $120.54 billion.

Revenue from sales of the company’s two-in-one Surface rose by 25% and search advertising revenue rose 17%, excluding traffic acquisition costs.

LinkedIn revenue rose 37% year over year, and gaming revenue rose 39%, driven primarily on the strength of third-party titles.

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Shares traded up about 3.2% at $107.76 in premarket trading on Friday. The stock closed at $104.40 on Thursday, in a 52-week range of $71.28 to $106.50. Before the earnings announcement, the 12-month consensus price target on the stock was $113.47.

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