When it comes to cloud computing, Amazon Web Services is the undisputed leader, but many in the tech industry were surprised by the continued strong showing by Microsoft (NASDAQ:MSFT), which jumped into second place and is gaining on the leader. Solid results over the past several quarters have helped the tech giant's stock gain 27% so far this year, nearly eight times the performance of the S&P 500.
Investors will be watching several areas of the company's business when Microsoft reports the financial results of its fiscal first quarter after the market close on Oct. 24. Let's take a look at the company's recent results and several business segments that are likely to be key components to Microsoft's success or failure when it reports earnings.
Head in the clouds
For its 2018 fiscal fourth quarter (which ended June 30, 2018), Microsoft reported revenue of $30.1 billion, an increase of 17% year over year, exceeding both the high end of the company's guidance and analysts' consensus estimates. Profits were even more impressive, with net income of $7.4 billion resulting in diluted earnings per share of $0.95, an increase of 36% compared to the prior-year quarter, which also exceeded expectations.
There were several important contributors to the company's strong showing, but the most impressive results came from Azure, Microsoft's cloud computing solution, which grew 90% year over year. That drove results for its commercial cloud segment to $6.9 billion, up 53% compared to the prior-year quarter.
A few other highlights show the breadth of Microsoft's growth. Commercial sales from the Office suite of products grew 38% year over year, while gaming revenue climbed 39% compared to the prior-year quarter. Revenue from LinkedIn -- the company's business social networking platform -- grew 37% year over year, while engagement also grew, topping 41%. Microsoft's Surface line of computing products continued to gain traction, growing 25% year over year. Each of these segments will provide insight into whether Microsoft's momentum will continue.
Recent data from Gartner revealed that Microsoft became the fifth-largest PC vendor by unit shipments in the United States during the third quarter of 2018 -- so expect to hear more from the company on this important milestone.
Microsoft should also be providing additional color on the progress of its $7.5 billion acquisition of open-source developer platform GitHub.
What investors can expect
For its 2019 fiscal first quarter, Microsoft is forecasting revenue of between $27.35 billion and $28.05 billion, which would represent year-over-year growth of 12.9% at the midpoint of guidance. The company is anticipating cost of goods of about $9.6 billion and operating costs of $9.25 billion but hasn't provided earnings-per-share guidance.
While we don't put much stock in Wall Street's expectations, they can provide context. Analysts' consensus estimates are calling for revenue of $27.9 billion -- near the high end of Microsoft's guidance -- and earnings per share of $0.96.
If Microsoft can continue to improve across a wide swath of its business while producing out-sized results in its cloud segment, investors will have plenty to look forward to when the company reports earnings on Oct. 24.