The only news you read about Microsoft these days is bad, so it may come as a shock to some that Microsoft just announced a blowout quarter of earnings, with revenue of $18.53 billion and net income of $5.24 billion, both well up from a year ago. Is this a one-time blip, or is the company proving the nay-sayers wrong?
The earnings announcement covers the third quarter ending September 30, and it shows a robustly healthy company. Its $18.53 billion of revenue is up compared to $16.01 billion in the quarter a year ago, and its net profit of $5.24 billion is up from $4.47 billion in the quarter a year ago. It's hard to argue with those numbers and that growth.
Even more impressively, that has come while sales of PCs and therefore of Windows, once Microsoft's mainstay, have been plummeting.
So how has Microsoft done it? Largely because of its sales to businesses. The company has reorganized since its last earnings report, so it's a bit difficult to compare the most recent report to previous ones division by division. But Microsoft now breaks out results into two broad categories: Commercial revenue which is to businesses, and devices and consumer revenue, which is generally to consumers. Commercial revenue grew 10% to $11.20 billion, with SQL Server, Lync, SharePoint, and Exchange, growing collectively by grew double-digits. Commercial cloud revenue was up 103%.
Devices and consumer revenue unsurprisingly lagged, growing 4% to $7.46 billion. But even that 4% growth could be seen as a victory, because it comes as Windows revenue continues to fall.
So is this a one-shot blip, or can Microsoft expect more of the same in the future?
Based on the report, it appears as if more of the same is on the way, even though Windows revenue will likely continue to fall, and Microsoft still hasn't broken into the mobile market in any serious way. On the commercial side, where most of the revenue and most of the growth is, there's no end in sight to Microsoft's success. Nothing is challenging the success of SQL Server, Lync, SharePoint, and Exchange. And the commercial cloud revenue growth of 103% shows that Microsoft is doing well in a potentially big growth business.
On the more challenging consumer side, there are some good signs as well amid troubling ones. The troubling one is obvious: a continued slump in Windows revenue. Microsoft said that Windows OEM revenue fell 7% in the quarter, although Windows Pro revenue was up. It declined to say by how much Pro revenue increased. Surprisingly, though, search advertising revenue grew by 47%. As for the Surface, Microsoft said that revenue grew to $400 million, up from the prevous quarter. It's hard to know what to make of that, because of how poorly the Surface had sold. I wouldn't count on Surface being a growth area.
Essentially, the earnings report reveals a tale of two companies, one doing extremely well, the other not nearly as good. The New York Times is on target when it writes:
Microsoft’s new chief executive will inherit two companies. One is thriving, the other is sluggish.
But even with a sluggish devices and consumer division, Microsoft is a big, profitable, successful company, and will be that way for a long time to come. And if it ever manages to break into the mobile market, the sky is the limit.