Microsoft's Growth Engine is Firing on All Cylinders

Microsoft (MSFT 1.83%) is a company reborn. Only a few years ago, the software giant was facing an uncertain future. Its formerly dominant operating system business was steadily losing relevance as modern computing moved away from the PC and into mobile, an area the company had never established a foothold in. 

Fast forward to today, and Microsoft is back in the game. It's grown its market value to more than $1.6 trillion at recent prices. 

On the Nov. 2 edition of "The Wrap" on Motley Fool Live, Motley Fool analyst Tim Beyers walked "The Wrap" host Jason Hall and Motley Fool contributor Brian Feroldi through Microsoft's latest results, pointing out just how well the company is executing. 

Tim Beyers: Right. Microsoft had its first quarter earnings report and this was last week. Let me just pull this up here because I want to pull up their release. But I think it was very strong and I think the thing that it gets glossed over, but it shouldn't, is that among the ones that are here domestically in the U.S. That's talking AWS, Microsoft Azure, and I don't know. Some people say Azure, I say Azure. I don't know. Abiomed.

Tim Beyers: BioMed, I have no idea. But here's a thing, of the three, Google Cloud, Azure, and AWS, who is the fastest-growing? Who continues to be the fastest-growing? Azure and they did it again. Let me just show this here.

Jason Hall: Wait. You mean Azure?

Tim Beyers: Yeah. There you go. Exactly right. 

Brian Feroldi: Azure.

Tim Beyers: Yes or whatever. Do we even know? I don't know. So overall, Microsoft Azure was up 45% year-over-year. But here's the thing I want to show just in general. If you take a look across all the products, remember that this is a company that's well over a trillion dollars in market cap. This is growing very quickly. I just want to show some basic products and how fast these are growing. Server products up 21% in constant currency. Xbox content and services up 30% same year-over-year. Microsoft Surface, their hardware product in constant currency up 36% year-over-year.

Windows is -- granted -- you want to talk Windows and Windows OEM, installing Window machines that ship from somebody else, like Microsoft has a deal with say like Dell, and then Dell puts Windows on their machines and then they ship out those machines. So Microsoft gets some licensing fees. That used to be the biggest part of their business, down 5% year-over-year. That is largely, except for Bing, search advertising, everything else, except Office commercial products is double-digit growth. That is astounding.

Let me give you some perspective on this. So overall, in the latest quarter, Apple, killer business. We all know Apple is a great business. But Apple's big growth opportunity, is services. How much do you guys think services was up for Apple in the most recent quarter?

Brian Feroldi: 5%.

Tim Beyers: About 16%. It's definitely growth. Look at all these products. That's like basically matching LinkedIn, which Microsoft's like, "Yeah. We got this thing." My point here is that, Microsoft is really killing it. They're really killing it and I think that is underappreciated about how this company has structured a portfolio of products that has been very attractive for the customer base that's very sticky and they have this two layers. They have the Office products and the Windows products that provide an annuity cash flow stream, that Microsoft has proven really adept at reinvesting into high-growth opportunities, like Azure and they're killing it. I continue to believe that even though I say of the two, between Amazon and Microsoft, because if you split up Amazon today, and you split out AWS, I think Amazon would be a more valuable company. But in terms of business quality, I do not believe there is a better business in the world right now than Microsoft. Full stop.

Jason Hall: That's a powerful statement.

Tim Beyers: Full stop.

Jason Hall: That is a powerful statement.