Can Microsoft Corporation Find Growth in These 2 Critical Areas?

Microsoft's (NASDAQ: MSFT  ) fortunes took a hit with the decline of the PC market. But now, it seems the company is making a comeback. The PC giant's third-quarter earnings report was a good one, as it delivered a big earnings beat. But more important, Microsoft saw gains in key business areas. The company is making good moves in the cloud, and revenue from Bing, its search engine, was also strong. As a result, Microsoft seems to be strengthening its position, and it could provide stiff competition for Google (NASDAQ: GOOG  ) going forward.

Enterprise growth driving results
Microsoft's strategies revolve around solid execution and transition to new trends. As a result, the company has witnessed strong momentum in its cloud-based services. The company's commercial cloud business doubled, year over year, in the last quarter, with Office 365 delivering an impressive annual revenue run rate of $2.5 billion. In addition, Azure revenue grew 150%, year over year. These improvements were driven by more customers and increased usage. Also, Microsoft observed solid growth in Windows licensing revenue.

Microsoft aims to upgrade and advance its Office, Windows, and data platforms going forward. It is planning strategically to invest in cloud capabilities, including Office 365 and Azure, and the fast-growing software-as-a-service and cloud platform markets. Microsoft's Office 365 Home added nearly 1 million new users in the previous quarter and now has a total of 4.4 million subscribers. The company is continuously making efforts to enhance the value proposition of Office 365, enriching the product with new features, premium services, and cross-platform functionality. 

This is a good move on Microsoft's part, since the company is facing stiff competition from Google in the enterprise space. Google offers its Google Apps for much lower prices than Office 365. The basic package of Google Apps for Business options costs $50 per user, per year, while the Premium package costs $120 per user per year. In comparison, Office 365 Enterprise E3, the full-blown version of Office 365 costs a whopping $240 per person, per year.  

However, the fact that Microsoft offers much more functionality and comprehensiveness with Office 365 could help it gain the upper hand over Google in this area.

More positives
Microsoft is looking to turn around its personal computer business, which was down 4.4% last quarter. This was the eighth-straight quarter of declines, as tablets and smartphones have gained popularity. However, Microsoft believes that this segment will turnaround, as it had stopped supporting Windows XP in early April. This is expected to prompt consumers and businesses to upgrade their PCs going forward.

A big surprise was 38% growth in search revenue. Microsoft's U.S. search market share grew to 18.2% in the previous quarter, and the company is looking to drive more such gains going forward. Although Microsoft is still way behind Google, which commands a search market share of 67.3%, the software giant's positive moves to increase its presence are commendable, as they have lead to an increase in revenue per search.

Finally, Microsoft is also seeing good growth in revenue from devices and consumer products. The primary reason behind this is the launch of the Xbox One gaming console. Microsoft has shipped more than 5 million Xbox One units so far, and analyst firm IHS expects it to sell a total of 38 million units in the next five years. In addition, Microsoft's moves such as bundling popular games like Titanfall should help it sell more Xbox One devices going forward, resulting in higher revenue from the consumer segment. 

Bottom line
Microsoft seems to be efficiently navigating the declining PC market. Its focus on the cloud and the consumer market is helping it execute its turnaround nicely. Investors should remain patient and have faith in Microsoft's execution. The company has done well so far and it should continue improving.

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