Microsoft Q2 2018 Earnings Release: Azure up 98%, Dynamics 365 up 67%

Microsoft has announced the following results for the quarter ended December 31, 2017:

  • Revenue of $28.9 billion, up 12%
  • Operating income $8.7 billion, up 10%
  • GAAP net loss $(6.3) billion, with non-GAAP net income $7.5 billion
  • GAAP diluted loss per share $(0.82), with non-GAAP diluted earnings per share was $0.96
  • GAAP results include a $13.8 billion net charge related to the Tax Cuts and Jobs Act (TCJA); a big “ouch,” which is excluded from non-GAAP results.

That revenue narrowly edges analyst expectations. Analysts had expected Microsoft to earn $28.39 in revenue and earnings per share of $0.86.

CEO Satya Nadella credits the results to both “the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice…Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth.”

“We delivered another strong quarter with commercial cloud revenue growing 56% year-over-year to $5.3 billion,” said EVP and CFO Amy Hood, crediting “Strong execution from our sales teams and partners is driving growth across our businesses.”

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Revenue in Productivity and Business Processes was $9.0 billion and increased 25% (up 24% in constant currency), with the following business highlights:

  • Dynamics products and cloud services revenue increased 10% (up 9% in constant currency) driven by Dynamics 365 revenue growth of 67% (up 68% in constant currency)
  • LinkedIn contributed revenue of $1.3 billion during the quarter with sessions growth of over 20% for the fifth consecutive quarter
  • Office commercial products and cloud services revenue increased 10%, driven by Office 365 commercial revenue growth of 41% (same figures in constant currency)

As we reported last week, analysts are bullish on Dynamics’ contribution to Microsoft earnings. Christober Eberle of Instinet wrote:

“We estimate total Dynamics to be a >$5bn/year business by CY’20, with $4.5bn of that coming from Dynamics 365, up from $1.6bn in CY’17, which could prove conservative if share gains are greater than currently estimated.”

Revenue in Intelligent Cloud was $7.8 billion and increased 15% (up 15% in constant currency). Among the highlights:

  • Server products and cloud services revenue increased 18% (up 18% in constant currency) driven by Azure revenue growth of 98% (up 98% in constant currency). Azure growth in Q1 was 90%.
  • Azure premium services revenue grew triple digits, for the 14th consecutive quarter
  • Enterprise Mobility install base grew 64% year-over-year, and is now $60M+
  • Enterprise Services revenue increased 5% (up 3% in constant currency) driven by Premier Support Services