Tech giant Microsoft (MSFT 1.22%) impressed investors when it shared its last quarterly update. Revenue and earnings per share soared past estimates on the back of strong growth in Microsoft's Office 365 products and its intelligent cloud segment.

Going into Microsoft's second fiscal quarter of 2018 (coinciding with the fourth calendar quarter of 2017), investors will be looking for more of the same. After all, the stock is up 41% in the past year and 14% in the past three months alone.

Ahead of Microsoft's second-quarter earnings release, here's a look at three key areas for investors to watch.

Microsoft executive discusses the power of Microsoft Azure

Image source: Microsoft.

Revenue growth

Microsoft's revenue growth certainly made the spotlight when the company reported its first-quarter results. Quarterly revenue of $24.5 billion beat the consensus analyst forecast for the quarter by nearly $1 billion, climbing 12% year over year.

Looking to the second quarter, analysts expect revenue growth to decelerate to 8.9% year over year. While this growth is well below the 12% revenue growth Microsoft posted in Q1, it's still strong compared to the company's growth over the last five years. During this period, revenue has increased at an average rate of 4% annually. 

Office 365 commercial revenue

One area in which Microsoft really shined in its first quarter was revenue growth in its commercial sales of Office 365. Office 365 commercial revenue increased 42% year over year during the quarter, playing a key role in the broader product and business processes segment's 28% year-over-year growth in quarterly revenue. The growth in Office 365 commercial revenue was driven by strong growth in its installed base of users and growth in average revenue per user, Microsoft said.

While investors shouldn't expect growth rates for Office 365 commercial revenue to remain this robust, management did hint that it expects more strong growth from the service. "Our commercial business should remain healthy," noted Microsoft CFO Amy Hood in the company's first-quarter conference call, "with solid renewal execution and increasing customer demand for our hybrid cloud services and new cloud solutions like Microsoft 365."


Microsoft's commercial cloud computing platform Azure has similarly been a bright spot lately, as computer usage more than doubled year over year in Q1 and Azure revenue rose 90% during the same period. This strong growth helped Microsoft's server products and cloud services revenue rise 17% year over year in Q1, aiding Microsoft's broader intelligent cloud segment in a 14% year-over-year bump in revenue.

As with Office 365 commercial revenue, investors shouldn't expect this 90% year-over-year revenue growth to persist for Azure, but investors should certainly check in on the segment, looking for year-over-year growth above 50%.

In addition to examining Azure's revenue growth rate in Q2, investors may want to look for commentary from management on Azure's gross margin trajectory. In Q1, Azure saw a material improvement in gross margin, management said. This was spurred by higher Azure revenue, growth in the premium services mix, and infrastructure improvements. Investors should look for these three positive factors to continue helping Azure's gross margin.

Microsoft reports its second-quarter results after market close on Wednesday, Jan. 31.