Microsoft Reports Strong Finish to a Record Fiscal 2019

Last week, Microsoft [NYSE: MSFT] reported a strong finish to a record fiscal year 2019, for the period ended June 30, 2019. During the

SaaS News: Microsoft Reports Strong Finish to a Record Fiscal 2019

Source: Microsoft

Last week, Microsoft [NYSE: MSFT] reported a strong finish to a record fiscal year 2019, for the period ended June 30, 2019. During the fourth quarter earnings call last Thursday, Microsoft announced revenue of $33.7 billion, a 12% increase year-over-year, and operating income of $12.4 billion, a 20% increase. Net income for the quarter was $13.2 billion (GAAP), a 49% increase year-over-year, and diluted earnings per share of $1.71 (GAAP), a 50% increase year-over-year.

Service and other revenue now makes up 49.3% of total revenue, and product sales make up the remainder. Last year, service and other revenue made up 43.0%, and product sales were 57% of total revenue.

Im proud of what we have accomplished over the last 12 months, and Im energized by the tremendous opportunity ahead, said Microsoft CEO Satya Nadella during the July 18 webcast. …Im optimistic about whats ahead. We are accelerating our innovation to deliver differentiated value to customers across the cloud and the edge – from GitHub to Azure to Dynamics 365 to Microsoft 365. We are investing in the right secular trends to expand our opportunity. And we are working to earn our customers trust every day.

Highlights from the fourth quarter include:

  • Revenue in Productivity and Business Processes was $11.0 billion, a 14% increase year-over-year.
  • Office Commercial products and cloud services revenue increase 14%, drive by Office 365 Commercial revenue growth of 31%.
  • LinkedIn revenue grew 25%.
  • Revenue in Intelligent Cloud was $11.4 billion, a 19% increase year-over-year.
  • Server products and cloud services revenue increased 22%.
  • Revenue in More Personal Computing was $11.3 billion, a 4% increase year-over-year.
  • Surface revenue increased 14%.
  • Gaming revenue dropped 10% with Xbox software and services revenue down 3%

Highlights from the full fiscal year include:

  • Revenue was $125.8 billion, a 14% increase.
  • Operating income was $43.0 billion, a 23% increase.
  • Net income was $39.2 billion GAAP, or diluted earnings per share of $5.06, a 138% increase year-over-year.

During the website CFO Amy Hood addressed the decline in gaming revenue. She said they expect gaming revenue to continue to decline as the console generation changes and competition grows. She also addressed some of the companys strong results for the quarter.

In our largest quarter of the year, our sales teams and partners delivered exceptional commercial results, which drove another quarter of double-digit top and bottom line growth, Hood said. From a geographic perspective, we saw broad-based strength across markets of all sizes.

Hood offered the following outlook for the first quarter of fiscal year 2020 and the fiscal year ahead:

  • For Q1, operating expenses will range between $10.1 billion to $10.2 billion.
  • For fiscal year 2020, Microsoft expects double digit revenue growth to continue, along with strong performance and continued momentum in their commercial business segment.
  • Gaming revenue will be down slightly due to declining console sales.
  • Operating expenses will increase as the company continues to invest in Cloud through AI, GitHub, Power Platform, LinkedIn and other products and services.
  • Microsoft anticipates double digit operating income growth and stable operating margins.

Microsofts support for Windows 7 is ending in January 2020, creating opportunities for customers to move over to Windows 10 and to upgrade to Microsofts subscription services. This could potentially have an impact on Microsofts financials for fiscal year 2020. In addition, on Microsofts Windows 7 support page, it encourages Windows 7 users to start fresh with a new device that has Windows 10 already installed. As an alternative, Windows 7 users can upgrade to Windows 10 Pro for $199.99. The ideal for Microsoft, of course, would be to move customers over to a Microsoft 365 package which comes with Windows 10 and provides the customer with a known cost and Microsoft with recurring revenue.

The earnings report had little effect on Microsoft stock. The day before the earnings report, July 17, Microsoft stock was valued at $136.27 per share. As of 7:59 p.m. EDT July 19, it was $136.62 per share.

SaaS News: Microsoft Reports Strong Finish to a Record Fiscal 2019

Source: Google

Insider Take:

The shift in gaming revenue is interesting, but not entirely surprising. Nintendo Switch Online already has 10 million customers with one in three also paying for the online gaming subscription. This eats into Xbox income as will the new console-free service, Stadia, that Google plans to launch this fall. Other gaming systems are also competing with Microsoft, and despite Microsofts reconfiguration of its Xbox subscription, Game Pass Ultimate, that has so far not made a big difference. That said, Microsoft can finally get out from underneath Windows 7 and move its resources fully toward Windows 10 and directing customers to its subscription products and new devices.

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