Microsoft Corp. [NASDAQ: MSFT] came out of the gate strong in the first quarter of its fiscal year 2019, for the period ended September 30, 2018. The Redmond, Washington-based company reported revenue of $29.1 billion, an increase of 19 percent year-over-year, operating income of $10.0 billion, an increase of 29 percent year-over-year, and net income of $8.8 billion, a 34 percent increase year-over-year, and diluted earnings per share of $1.14, a 36 percent increase year-over-year.

“We are off to a great start in fiscal 2019, a result of our innovation and the trust customers are placing in us to power their digital transformation,” said Satya Nadella, Microsoft CEO, in an October 24 news release.

“Our cloud platforms and tools enable our customers to build tech intensity while ensuring we are addressing their tough questions around trust – both trust in technology and trust that they have a partner whose business model is aligned to their success. No customer wants to be dependent on a provider that sells them technology on one end and competes with them on the other,” said Nadella on the earnings call.”

“Companies that get this equation right are the ones that will be successful going forward,” he added. “Microsoft is uniquely positioned to help customers achieve this tech intensity.”

Other highlights for the quarter include:

• Revenue in Productivity and Business Processes was $9.8 billion, a 19 percent increase year-over-year. This represents 33.7 percent of total revenue.
• Office commercial products and cloud services revenue increased 17 percent, driven by 36 percent revenue growth of Office 365 commercial products.
• Office consumer products and cloud services revenue grew 16 percent.
• Office 365 now has 32.5 million consumer subscribers.
• LinkedIn revenue grew 33 percent with record engagement.
• Dynamics products and cloud services revenue increased 20 percent. Dynamics 365 revenue grew 51 percent.
• Revenue in Intelligent Cloud was $8.6 billion, a 24 percent increase year-over-year. This represents 29.6 percent of total revenue.
• Server products and cloud services revenue grew 28 percent, driven by Azure growth of 76 percent.
• Enterprise Services revenue increased 6 percent.
• Revenue in More Personal Computing was $10.7 billion, a 15 percent increase year-over-year. This represents 36.7 percent of total revenue.
• Windows OEM revenue increased 3 percent, Windows commercial products and cloud services revenue increased 12 percent, and Gaming revenue was up 44 percent with Xbox software and services revenue growth of 36 percent. Xbox hardware revenue grew 94 percent.
• Search advertising revenue, excluding traffic acquisition costs, grew 17 percent, and Surface revenue increased 14 percent, driven by Surface Go and Surface Book 2.
• Microsoft returned $6.1 billion to shareholders in dividends and share repurchases during the first quarter.
• The company reported total assets of $257.6 billion at the end of the first quarter of fiscal year 2019.

Among other highlights, Nadella noted that gaming is lucrative for the company. Microsoft now reaches 2 billion gamers worldwide, and its Xbox products and services continue to grow. Xbox Live now has 57 million monthly active users. Earlier this month the company announced the launch of Project xCloud, a game-streaming technology that provides gamers with an optimal user experience, allowing them to play games in high-fidelity on any device at any time.

“It’s early days, but I’m excited about our road map,” Nadella said.

“Our record results for Q1 reflect our commitment to long-term strategic investments and consistent execution to drive revenue growth and operating margin expansion,” said Amy Hood, executive vice president and CFO. “We see continued demand for our cloud offerings, reflected in our commercial cloud revenue of $8.5 billion, up 47% year over year.”

Hood provided guidance for the coming quarter:

• The acquisition of GitHub is expected to close soon.
• Commercial unearned revenue will grow approximately 19 percent year-over-year.
• In the Productivity and Business Processes segment, they estimate revenue between $9.95 billion and $10.15 billion.
• In the Intelligent Cloud segment, of which GitHub will be a part, they estimate revenue between $9.15 billion and $9.35 billion.
• In the More Personal Computing segment, they anticipate revenue between $12.8 billion and $13.2 billion.
• Microsoft estimates operating expenses ranging between $9.8 billion and $9.9 billion.

Despite a solid earnings report, Microsoft stock dropped yesterday to $102.32 per share as of 7:59 p.m. EDT from $108.10 per share the day before. However, that is likely related to the Dow Jones losing more than 606 points yesterday. According to MarketWatch, this has been a tough month for the stock market. Microsoft is likely not the only subscription company that whose stock value will take a hit this month.

Insider Take:

Microsoft may have taken a slight hit in the stock market due to global market conditions, but it still reported strong numbers for its first quarter of fiscal year 2019. In addition to growth in every business segment, the company reported 11-pages of major product releases and highlights to continue meeting and exceeding its clients’ expectations.

For example, Microsoft is further integrating its products with LinkedIn, offering enhancements and additional uses. When a user links their Microsoft and LinkedIn accounts, they can send emails and share documents with first-level contacts in LinkedIn, directly through Outlook, Word, Excel and PowerPoint. Microsoft is also enhancing security features, collaboration tools and app integrations, among other highlights. We anticipate Microsoft will have another solid year, a credit to Nadella’s vision and execution.