Microsofts fiscal year 2020 is off to a good start, reporting revenue of $33.1 billion, a 14% increase year-over-year, for the quarter ended September 30, 2019. The strong revenue was driven by cloud revenue, including Productivity and Business Processes at $11.1 billion and Intelligent Cloud at $10.8 billion, increases of 13% and 27% respectively. Operating income for the first quarter of fiscal year 2020 was $12.7 billion. Microsoft reported net income of $10.7 billion and diluted earnings per share of $1.38, a 21% increase year-over-year, beating Wall Street expectations.

We are off to a strong start in fiscal 2020, delivering $33 billion in revenue this quarter. Our Commercial Cloud business continues to grow at scale as we work alongside the worlds leading companies to help them build their own digital capability. Microsoft provides a differentiated technology stack spanning application infrastructure, data and AI, developer tools and services, security and compliance, business process productivity and collaboration, said Satya Nadella, Microsoft CEO, on the October 23 earnings call.

First, each of these areas represents secular, long-term growth opportunities; second, were delivering best-in-class innovation and openness in each layer; and third, we offer unparalleled integration and architectural coherence across the entire stack to meet the real world needs of our customers, added Nadella.

Other highlights for the quarter include:

• Office Commercial products and cloud services revenue increased 13%, driven by Office 365 Commercial revenue growth of 25%.
• Office Consumer subscribers increased to 35.6 million.
• LinkedIn revenue grew 25% year-over-year.
• Dynamics products and cloud services grew 14%, driven by Dynamics 365 revenue growth of 41% year-over-year.
• Server products and cloud services revenue increased 30%
• Windows Commercial products and cloud services revenue increased 26% year-over-year.
• Microsoft returned $7.9 billion to shareholders in dividends and share repurchases, a 28% increase year-over-year.

LinkedIn, who Microsoft acquired in 2016, continues to do well for Microsoft with strong increases in revenue. Marketing Solutions is the fastest growing segment of LinkedIn income with a 44% increase year-over-year. Microsoft expects this segment will continue to do well as marketers try to reach nearly 660 million members on the LinkedIn platform. Growth in Xbox content and services revenue was flat, indicating the growing competition. Surface revenue dropped 4%, but the company expects that to turnaround with the release of new products.

CFO Amy Hood provided the following guidance for the second quarter of fiscal year 2020:

• Productivity and Business Processes revenue between $11.3 billion and $11.5 billion, driven by double-digit growth across Office Commercial, Dynamics and LinkedIn
• Intelligent Cloud revenue between $11.25 billion and $11.45 billion
• More Personal Computing revenue between $12.6 million and $13 million
• Low double-digit growth in Surface, based on the newest versions of Surface Pro and Surface laptops

At the Company level, we continue to expect double digit revenue and operating income growth, driven by continued momentum in our commercial business. Given our strong first quarter results and the expected sales mix for the remainder of the year, we now expect operating margins to be up slightly year-over-year, even as we continue to invest with significant ambition in high growth areas, said Hood.

The earnings report was given after hours, Eastern time, so it had little impact on the companys stock price, which went from $136.37 per share to $137.24 per share, as of 5:55 a.m. Eastern today.

Insider Take:

Microsoft continues to do well with its cloud services, and though growth with Azure has slowed, the company has much to look forward toward in the quarters ahead. With the release of new Surface products and continually improved cloud products and services, Microsoft is expecting a strong year. LinkedIn continues to do well, and as support for Windows 7 drops off, Microsoft will see new revenue from those who convert to Windows 10. While not critical to the companys success, Microsoft needs to take a look at its Xbox revenue, or it will remain stagnant or drop as competition grows (e.g., Apple Arcade, Google Play Pass and Google Stadia).