“They were at an all-time high before the report with people expecting they’d blow away the numbers, so you can make the case it was priced for perfection”, said Dan Morgan, a senior portfolio manager at Synovus Trust, which owns Microsoft shares.
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More Personal Computing, which includes Windows, was down 7% year-over-year – a dip that Microsoft blames on its struggling phone business.
For the past two years, Microsoft’s released new Surface models in the fall – the Surface Pro 4 and the Surface Book on October 26, 2015, and the Surface Studio and Surface Pro with Performance Base on October 26 2016 – so it’ll be interesting to see whether this release pattern holds or if fiscal Q4 2017 might be boosted by a hardware release. Nor is there any good indication of cloud revenue (and expenses) are split between Azure, Office 365, Dynamics 365, Bing, and Xbox Live. First-quarter revenues were $14.8 billion, up 8 percent over the same period past year.
But Microsoft shares slipped in after-hours trading after total revenue came in below expectations.
The revenue for the Dynamics and cloud products increased by 10 percent, where the growth was mainly driven by Dynamics 365.
A decade ago, when sales of Windows and Office accounted for Microsoft’s entire operating income, those businesses either didn’t exist or had a fraction of their current profitability. “Increasing Azure consumption has been their No. 1 sales priority”, said Chris Voce, vice president and research director at Forrester Research Inc. Analysts on average had expected 70 cents per share, according to Thomson Reuters I/B/E/S (bit.ly/2oQAzSJ) Revenue on an adjusted basis climbed 6 percent to $23.56 billion, missing analysts’ average estimate of $23.62 billion.
Excluding one-time items, Microsoft earned US73¢ per share.
“Strong execution and demand for our cloud-based services drove our commercial cloud annualized revenue run rate to more than $15.2 billion”, announced Amy Hood, executive vice president and chief financial officer at Microsoft, in a statement. “All this is very impressive”, commented Patrick Moorhead of Moor Insights & Strategy.
This was also the first full quarter since Microsoft’s massive $26 billion acquisition of LinkedIn closed. The operating system, now called Windows 10, is being distributed in the form of a software service – via free over the air updates.
Establishing Azure as the sole platform for building all digital products ensures they can be developed cost efficiently, fast and that they are scalable across the different brands in the transport and logistics division. Small increases in sales from the gaming and Windows OEM businesses, as well as Windows commercial products and cloud services, were overshadowed by a significant drop in Surface revenue, which dropped by 26%. New devices like HoloLens and Surface Hub have an interesting future but will likely not contribute very much revenue for the foreseeable future.
The Productivity group as a whole reported revenue of $7.96 billion, up 22 percent year-on-year.
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Moorhead said investors’ focus on DCG revenues overshadows the strong progress the company is making.
