ii view: Largely business as normal for Microsoft

Cloud data servers remain central for the world’s largest company. 

Third-quarter results to 31 March 2020

• Revenue up 15% to $35 billion
• Net income up 22% to $10.8 billion
• Earnings per share (EPS) up 23% to $1.40
• Returned $9.9 billion to shareholders in the form of dividends and share repurchases

Chief executive Satya Nadella said:

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything. 

“Our durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”

ii round-up:

Windows software maker and cloud data centre operator Microsoft (NASDAQ:MSFT) remained for now largely unaffected by Covid-19.

Both sales and profit surpassed analyst expectations with management highlighting “minimal impact” from the pandemic. 

Its cloud data server business, competing against Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), stayed central in its performance. Sales for the overall division including its Azure product jumped by 27% to $12.3 billion. 

Revenue for its personal computing business gained by 3% to $11 billion, aided by work-from-home requirements under Covid-19 measures. Sales for its Surface products rose, with demand for its Xbox games console content and services up 2%. 

Competing against Zoom Video Communications (NASDAQ:ZM), its Teams software now has over 75 million daily active users, a gain from just 44 million back in mid-March.

Microsoft shares rose by more than 4% in after-hours US trading.

Including a quarterly dividend of 51 cents per share – up 11% from the third quarter last year although unchanged on the previous quarter – total quarterly shareholder returns are up by 33% to $9.9 billion.

Management guidance for the next quarter however proved more cautious, suggesting more challenged sales for some smaller business software. 

ii view:

Seemingly having previously lost its way with Windows phone software, Microsoft has revived its fortunes. The arrival of the current chief executive in 2014 has had a galvanising effect, providing renewed clarity of purpose. Its move to build on its cloud server business has paid off handsomely. 

To date, Covid-19 has had little impact. Although in such an uncertain world, it is probably sensible to consider that this could change. 

For investors, Microsoft shares have firmly established their former growth tag. The share price rose by more than 55% during 2019. And are up over 10% year-to-date. Shareholder returns including a dividend payment should also not be forgotten - although dividend income is not what you buy Microsoft for. This well-run tech company gives investors exposure to parts of the economy and industry catalysts that are difficult to find elsewhere. For many investors it is still a must-own stock.

Positives: 

• Its Windows operating system holds a dominant market position
• More than 95% of Fortune 500 companies run their business on its cloud

Negatives:

• Political concern regarding the size and power of technologies companies has grown
• Cautious outlook comments

The average rating of stock market analysts:

Strong buy