Microsoft recently announced its FY19 Q2 earnings and in doing so, took a moderate hit to its stock evaluation in after hour trading due to what investors saw as only moderate growth for the company.
The hit after the announcement resulted in a shaving of roughly $4.00 of its prior $106.38 mark, however, Microsoft’s stock has since recovered and at times, exceeded its prior earnings evaluation.
Part of the up and down nature of Microsoft’s post-earnings reviews may have something to do with investors reclaiming their knee-jerk reactions and seeing what Seeking Alpha’s research analyst Bert Hochfeld may have uncovered from the company’s earnings news.
According to Hochfeld, the extent of Microsoft’s actual cloud profitability was overshadowed by mitigating one-time factors, that, if revenue remains constant, should highlight the steep rise in the company’s overall cloud business.
- Beneath the headlines – the company achieved a major acceleration in growth in its commercial business – with bookings rising by 22%.
- Commercial is now close to 70% of revenues.
- Profitability was constrained by various one-time factors, but the profitability of Azure and Microsoft’s cloud business overall is rising at steep rates.
Similar to much of the industry’s conclusive analysis, Hochfeld recognizes Microsoft’s pivot and but underneath the success of revenue generating decisions lay profitable outcomes not quite highlighted in all of the company’s earnings reports.
Microsoft has actually been able to execute that pivot and come out growing and generating cash on the other side.
I have enjoyed my ride down the Microsoft river and I will continue the journey. I can’t ignore 76% Azure growth or some of the other gaudy metrics the company has reported, particularly for Office 365 and its various flavors of Dynamics 365.
As Microsoft and Amazon continue to chew up cloud computing market share with big-name partnerships and contracts, the race to profitability will become an increasingly important metric to keep an eye on.