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Microsoft (NASDAQ: MSFT) reported their fiscal Q2 2020 earnings today for the period ending Dec. 31, 2019 and posted very strong results.

The company reported revenues of $36.9 billion, a 14% improvement over the same quarter last year and beating analyst estimates of $35.68 billion.

We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success. Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organization can benefit.Microsoft CEO, Satya Nadella

Sales in Microsoft’s Intelligent Cloud segment increased to $11.9 billion, a 27% year over year improvement lead by huge growth in the company’s cloud computing product Azure which saw revenue growth of 62%.

One of Microsoft’s big wins in the quarter was the potentially massive $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract for cloud computing services. While the contract award is currently being disputed by Amazon (NASDAQ: AMZN) over claims of political interference from President Trump, the win for Microsoft’s Azure over Amazon’s AWS cloud services is a huge vote of confidence.

Microsoft’s other growth segment in productivity and business processes saw revenues grow 17% over the same quarter last year. Both commercial and consumer office products showed consistent growth of 16% and 19% respectively, while social platform LinkedIn grew revenues 24% for the quarter.

Another interesting area of competition for Microsoft has been in office productivity and collaboration software. Microsoft has been in a public feud with upstart and recently public Slack (NYSE: WORK) over the number of daily users for its Microsoft Teams product. Most recently Microsoft reported to have 20 million daily active users for Teams compared to Slack’s 12 million users, but Slack argues that its users are much more engaged compared to Teams users, most of whom get the product for free with Office 365.

Source: Ycharts

On a profitability basis, Microsoft reported diluted earnings of $1.51 per share which crushed consensus estimates of $1.32.

Microsoft stock had an impressive 58% return over the course of 2019 and has continued to run another 5% in 2020 thus far.

Operating margins in both the Intelligent Cloud and Productivity and Business Process segments grew more than 3% compared to the same quarter last year. The cloud business saw operating margins grow from 35% to 38% while the productivity business saw margins grow from 40% to 44%.

Microsoft stock had an impressive 58% return over the course of 2019 and has continued to run another 5% in 2020 thus far. Heading into earnings the stock traded up just under 2% today and was up another 2% in after market trading immediately following release of their results as of the time of publishing.

Compared to peers, Microsoft is trading in the lower end on a forward price to earnings basis despite its outstanding stock price improvement over the past year. With these strong earnings reported this past quarter it will be interesting to see where the market prices a company growing revenues at 14% with operating margins of 38%.

Source: Ycharts

About Author

Don Weaver

Don has over 15 years of technology, business and start-up experience focusing on software, hardware integration and project management. Don’s research at Grizzle explores the intersection of technology and money. Don holds an MBA from HEC Paris.

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