Microsoft reported earnings after the close Wednesday. They were spectacular, yet again. The surprise, for anyone who wasn’t paying attention, was how little the business is being impacted by the COVID-19 pandemic.
According to a corporate press release, third-quarter revenues surged to $35 billion, a 15% increase year-over-year. Sales from its Azure cloud business ramped up 59%. The company reported $10.8 billion in profits.
The scary thing, especially for competitors, is the company is only getting started.
The Redmond, Wash. software giant is firing on all cylinders because years ago, managers made the choice to begin moving customers and its own infrastructure to the cloud. That meant all the heavy lifting, the processing and storing of data was running in robust data centers all over the world. When most of the world shuttered due to COVID-19, Microsoft was ready.
Microsoft CEO Satya Nadella says that two full years of digital transformation has occurred during the last two months. Work from home initiatives forced enterprises to accelerate migration to cloud-based infrastructure. Getting employees online and securing their data is right in Microsoft’s wheelhouse.
The Commercial Cloud division generated $13.3 billion in sales during the quarter, up 39% from the same period last year. Given what is happening in the world economically with historically falling GDP and record unemployment, that’s a home run.
But the kicker is digital transformation is only in the early innings.
Statista, an online analytics aggregator, finds that analysts project the total addressable market for digital transformation strategies to reach $1.9 trillion by 2022, up from $1.2 trillion in 2019.
And Microsoft is winning its fair share of that marketplace. Revenues at its Intelligence Cloud division increased to $12.3 billion, up 27% from a year ago. That division is also home to Azure.
Related Post: Microsoft’s Scale is Winning the Cloud Race
Going forward beyond the pandemic, the company is in a great position. Scale is an important competitive advantage in the brave new digital world. Enterprises want expertise and innovation, but they also want to be certain their technology partners have the wherewithal to get the big things done.
This undoubtedly plays into the strengths of Amazon.com (AMZN), Google and Microsoft. And it’s an advantage that is not going to change any time soon.
Although you would never know it, Microsoft has become the most valuable public company in the world. Its market capitalization is $1.36 trillion.
Related post: Microsoft Was Built for the COVID-19 Crisis
Prices recently traded near the $177 level. The record high is $191. The stock is headed there in the near term. Over the intermediate term, the next 18 months, the stock could potentially trade to $270 based on sales growth alone.
Investors should certainly be keeping an eye on this tech giant, and view pullbacks as opportunities.
Best Wishes,
Jon D. Markman
