Microsoft (NASDAQ:MSFT) has had a stellar run, returning over 45% in the previous 12 months, nearly four times the return of the broader market. One of the key drivers of those impressive results has been the company's success in the realm of cloud computing. While Amazon Web Services continues to be the 800-pound gorilla in the room, Microsoft has surprised some by taking up a strong second position.

Investors were watching closely when the company reported the financial results of its 2018 fiscal fourth quarter, which ended on June 30, 2018, to ensure that Microsoft continues its recent pattern of strong growth -- and they were not disappointed.

Two girls in the back of a car looking at the Surface notebook.

Image source: Microsoft.

The raw numbers

Metric

Q4 2018

Q4 2017

Year-Over-Year Change

Revenue

$30.1 billion

$25.6 billion

17%

Operating income

$10.4 billion

$7.7 billion

35%

GAAP net income

$8.9 billion

$8.1 billion

10%

GAAP earnings per diluted share

$1.14

$1.03

11%

Data source: Microsoft Fourth-Quarter 2018 Financial Release. Chart by author.

Microsoft reported revenue of $30.1 billion, an increase of 17% year over year, and exceeding analysts' consensus estimates of $29.21 billion. Adjusted net income of $8.3 billion resulted in adjusted earnings per share of $1.13, exceeding expectations of $1.08. 

More importantly, revenue increased across the all of the company's major business segments:

Major Business Segments

Q4 2018

Q4 2017

Year-Over-Year Change

Productivity and business processes

$9.7 billion

$8.6 billion

13%

Intelligent cloud

$9.6 billion

$7.8 billion

23%

More personal computing

$10.8 billion

$9.2 billion

17%

Total revenue

$30.1 billion

$25.6 billion

17%

Data source: Microsoft Fourth-Quarter 2018 Financial Release. Chart by author.

There were several noteworthy items buried within the company's reporting segments. Office 365 consumer subscribers grew to 31.4 million, while commercial revenue from the office suite grew 38% year over year. Revenue from LinkedIn, the business social networking platform, increased to $1.46 billion, up 37% year over year, while engagement -- as measured by LinkedIn sessions -- grew 41%. Gaming revenue increased 39% compared to the prior-year quarter. Revenue for the Surface line of computing products increased 25%, driven by new models and low prior-year comps.

Most impressive of all was the growth in revenue from Azure, the company's cloud-computing solution, which grew 90% year over year. The company has been increasingly winning large deals like the one announced earlier this week with Walmart, to power its cloud-computing segment.

Operating expenses were $10 billion, an increase of 9% year over year, growing slower than the rate of revenue, even in light of increased capital expenditures of $4.1 billion to support continuing demand for the company's cloud offerings. Free cash flow of $7.4 billion declined 15% compared to the prior-year quarter, as the result of these higher capital expenditures.

"We had an incredible year, surpassing $100 billion in revenue as a result of our teams' relentless focus on customer success and the trust customers are placing in Microsoft," said Satya Nadella, chief executive officer of Microsoft. "Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation."

Looking ahead

For the fiscal 2019 first quarter, Microsoft expects revenue in a range of $27.35 billion to $28.05 billion, which would represent year over year growth of 12.9% at the midpoint of guidance. Cost of goods sold is expected to be about $9.6 billion, while operating expenses are forecast at approximately $9.25 billion. Microsoft didn't provide earnings-per-share estimates.

For their part, analysts' consensus estimates are calling for revenue of $27.38 billion, near the low end of Microsoft's range, and adjusted earnings per share of $0.91, an increase of 8.3% compared to the prior-year quarter.

Microsoft's success in cloud computing continues to produce impressive results for the company -- and for shareholders.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.