Microsoft’s commercial cloud business grew 48 percent to $9.0 billion in the company’s second quarter of fiscal year 2019. This was just one of the tech giant’s highlights from its January 30 earnings report. The company reported revenue of $32.5 billion, a 12 percent increase year-over-year; operating income of $10.3 billion, an 18 percent increase year-over-year; and net income of $8.4 billion (GAAP), or diluted earnings per share of $1.08 (GAAP).

“We delivered $32.5 billion in revenue this quarter with double-digit top line and bottom line growth driven by strength across all of our commercial cloud. Our commercial cloud revenue grew 48%, anchored by Azure revenue growth of 76%. These results speak to us picking the right secular trends in large and growing markets, many of which are still in their infancy, as well as focused innovation and execution,” said Microsoft CEO Satya Nadella on the January 30 earnings call, transcribed by Seeking Alpha.

“Leading companies in every industry are partnering with us to build their own digital capability to compete and grow. This is creating a broad opportunity for everyone, including our ecosystem. As one example, the co-sell program we introduced 18 months ago has already generated $8 billion in contracted partner revenue,” Nadella added.

Other highlights for the quarter include:

• Productivity and Business Processes Revenue was $10.1 billion, a 13 percent increase year-over-year.
• Office Commercial products and cloud services revenue increased 11 percent year-over-year, led by Office 365 Commercial revenue growth of 34 percent.
• Office Consumer products and cloud services revenue grew 1 percent year-over-year. There are now 33.3 million Office 365 Consumer subscribers. At the end of Q1 FY2019, there were 32.5 million subscribers.
• LinkedIn revenue grew 29 percent with record engagement.
• Dynamics products and cloud services revenue grew 17 percent year-over-year, led by Dynamics 365 revenue growth of 51 percent.
• Intelligent Cloud revenue was $9.4 billion, a 20 percent increase year-over-year.
• Server products and cloud services revenue was up 24 percent year-over-year, and Enterprises Services revenue was up 6 percent.
• More Personal Computing revenue was $13.0 billion, a 7 percent increase year-over-year.
• Windows OEM revenue was down 5 percent.
• Windows Commercial products and cloud services revenue grew 13 percent year-over-year.
• Surface revenue increased 39 percent, and Gaming revenue was up 8 percent year-over-year.
• Search advertising revenue, not including traffic acquisition expenses, grew 14 percent year-over-year.
• Company gross margin was 62 percent, about the same as last year.
• Cash flow from operations grew 13 percent year-over-year.
• The company returned $9.6 billion to shareholders through share repurchases and dividends.

Microsoft also reported nine-and-a-half pages of product releases and enhancements that occurred during the second quarter of fiscal year 2019. Here are a few highlights from the earnings call:

• Surface had its biggest quarter during the 2018 holiday season.
• More than 420,000 organizations have adopted Teams as their enterprise-grade collaboration solution, including 89 of the Fortune 100.
• LinkedIn has grown to 610 million members, and engagement is higher than ever with 30 percent growth year-over-year.
• Xbox Live now has a record 64 million monthly active users.

CFO Amy Hood provided guidance for Microsoft, by business segment:

• Productivity and Businesses Processes revenue will range between $9.9 billion and $10.1 billion, with anticipated double-digit growth in Office Commercial and Dynamics and continued growth in LinkedIn.
• Office Consumer revenue growth is expected to continue in the low single digits.
• Intelligent Cloud revenue will range between $9.15 billion and $9.35 billion.
• More Personal Computing revenue will range between $10.35 billion and $10.65 billion with more revenue from Surface and gaming.
• Revenue growth from Windows OEM will be in the low single digits.
• Cost of Good Sold will be between $10.35 billion to $10.55 billion, and operating expenses will be between $10.1 billion and $10.2 billion.

“In closing, our accelerating customer momentum is driven by our deep and growing partnerships with leading companies and differentiated innovation across our portfolio. Every company is becoming a digital company, and they’re looking for a trusted partner to help them build tech intensity. Microsoft is that partner,” said Nadella.

Investors weren’t overly impressed. The day before the earnings report – January 29 – Microsoft was valued at $102.94 per share. It bumped up on January 30 to $106.38 per share but dropped again yesterday, finishing at $104.43 per share at 6:46 PM EST.

Insider Take: 

Microsoft is making significant headway in the SaaS marketplace, and its subscription products are giving the company long-term financial stability with predictable income. It is no surprise that Microsoft is planning to expand its subscription offerings to continue the success it has seen with cloud products, Office 365 subscriptions, gaming subscriptions and LinkedIn premium products. The company’s reorganization last spring has put the company on a path to support its innovation and future acquisitions.