Monday, 30 January 2017 10:21

Microsoft achieves US$500b market cap for first time since 2000

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Microsoft presented its best quarterly results since 2000 with the company rising above a US$500 billion market cap, its first since 2000, and posting a 55% return over the past two financial years.

Add to this the US$459 billion in cash surplus (over debt), huge property and plant holdings, and it makes it well over a trillion-dollar enterprise value. The company is now within spitting distance of Apple at US$642 billion and Alphabet at US$550 billion. As many analysts have said, “The cloud rains money.”

Its Q2, FY17 results (for the three months ended 31 December 2016) were US$26.066 billion in earnings and net income (profit) at US$6.515 billion. Microsoft returned US$6.5 billion to shareholders in that quarter.

Amy Hood, executive vice-president and chief financial officer at Microsoft, said, “I am pleased with our results this quarter. We see strong demand for our cloud-based services and are executing well on our long-term growth strategy.”

Microsoft's reliance on Windows and Office as installed programs has moved to Software as a Service – SaaS has removed many of the issues regarding security, updatability and creates an annual revenue stream that will exceed those from software sales.

Revenue in Productivity and Business Processes was US$7.4 billion and increased 10% (up 12% in constant currency), with the following business highlights:

  • Office commercial products and cloud services revenue increased 5%, driven by Office 365 commercial revenue growth of 47%;
  • Office consumer products and cloud services revenue increased 22% and Office 365 consumer subscribers increased to 24.9 million;
  • Dynamics products and cloud services revenue increased 7% driven by Dynamics 365 revenue growth; and
  • LinkedIn contributed revenue of US$228 million for the period beginning on 8 December 2016.

Revenue in Intelligent Cloud was US$6.9 billion and increased 8%, with the following business highlights:

  • Server products and cloud services revenue increased 12% driven by double-digit annuity revenue growth;
  • Azure revenue increased 93% with Azure compute usage more than doubling year-over-year; and
  • Enterprise Services revenue decreased 4% with declines in custom support agreements offset by growth in Premier Support Services and consulting.

Revenue in More Personal Computing was US$11.8 billion and decreased 5%, driven primarily by lower phone revenue, with the following business highlights:

  • Windows OEM revenue increased 5%;
  • Windows commercial products and cloud services revenue increased 5% driven by annuity revenue growth;
  • Search advertising revenue excluding traffic acquisition costs increased 10% driven by increased revenue per search and search volume; and
  • Gaming revenue decreased 3% with lower Xbox console revenue offset by Xbox software and services revenue growth.

In other words, the cash cows where cloud – Office 365, Dynamics, Azure (grew 93% Y-o-Y) with a smattering of advertising revenue. Xbox and personal computing were down.

Surface revenue was down 2% over Q1 but its gross margin was up 6% and Phone revenue (which reflects the closure and exorcizing of Nokia) was down 81%.


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Ray Shaw

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Ray Shaw ray@im.com.au  has a passion for IT ever since building his first computer in 1980. He is a qualified journalist, hosted a consumer IT based radio program on ABC radio for 10 years, has developed world leading software for the events industry and is smart enough to no longer own a retail computer store!

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