With 90% Growth, Microsoft Truly Has Its Head In The Clouds

Microsoft (NASDAQ:MSFT) has had a stellar run, returning over 45% in the previous 12 months, nearly four times the return of the broader market. One of the key drivers of those impressive results has been the company's success in the realm of cloud computing. While Amazon Web Services continues to be the 800-pound gorilla in the room, Microsoft has surprised some by taking up a strong second position.

This article originally appeared in The Motley Fool.

Investors were watching closely when the company reported the financial results of its 2018 fiscal fourth quarter, which ended on June 30, 2018, to ensure that Microsoft continues its recent pattern of strong growth — and they were not disappointed.

The raw numbers

Microsoft reported revenue of $30.1 billion, an increase of 17 percent year over year, and exceeding analysts' consensus estimates of $29.21 billion. Adjusted net income of $8.3 billion resulted in adjusted earnings per share of $1.13, exceeding expectations of $1.08.

More importantly, revenue increased across the all of the company's major business segments:

There were several noteworthy items buried within the company's reporting segments. Office 365 consumer subscribers grew to 31.4 million, while commercial revenue from the office suite grew 38 percent year over year. Revenue from LinkedIn, the business social networking platform, increased to $1.46 billion, up 37 percent year over year, while engagement — as measured by LinkedIn sessions — grew 41 percent. Gaming revenue increased 39 percent compared to the prior-year quarter. Revenue for the Surface line of computing products increased 25 percent, driven by new models and low prior-year comps.

Most impressive of all was the growth in revenue from Azure, the company's cloud-computing solution, which grew 90 percent year over year. The company has been increasingly winning large deals like the one announced earlier this week with Walmart, to power its cloud-computing segment.

Operating expenses were $10 billion, an increase of 9 percent year over year, growing slower than the rate of revenue, even in light of increased capital expenditures of $4.1 billion to support continuing demand for the company's cloud offerings. Free cash flow of $7.4 billion declined 15 percent compared to the prior-year quarter, as the result of these higher capital expenditures.

"We had an incredible year, surpassing $100 billion in revenue as a result of our teams' relentless focus on customer success and the trust customers are placing in Microsoft," said Satya Nadella, chief executive officer of Microsoft. "Our early investments in the intelligent cloud and intelligent edge are paying off, and we will continue to expand our reach in large and growing markets with differentiated innovation."

Looking ahead

For the fiscal 2019 first quarter, Microsoft expects revenue in a range of $27.35 billion to $28.05 billion, which would represent year over year growth of 12.9 percent at the midpoint of guidance. Cost of goods sold is expected to be about $9.6 billion, while operating expenses are forecast at approximately $9.25 billion. Microsoft didn't provide earnings-per-share estimates.

For their part, analysts' consensus estimates are calling for revenue of $27.38 billion, near the low end of Microsoft's range, and adjusted earnings per share of $0.91, an increase of 8.3 percent compared to the prior-year quarter.

Microsoft's success in cloud computing continues to produce impressive results for the company — and for shareholders.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Danny Vena owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.