FY19 (Premium)

As you may have seen, Microsoft issued its fourth-quarter and full-year earnings for Fiscal Year 2019 last night. Let’s take a closer look.

The numbers:

For the quarter ending June 30, 2019---the fourth quarter of Microsoft’s Fiscal Year 2019---the software giant posted net income of $13.2 billion (up 49 percent year-over-year) on revenues of $33.7 billion (up 12 percent YOY).

For the full fiscal year (FY19), Microsoft posted net income of $39.2 billion (up 137 percent YOY) on revenues of $125.8 billion (up 14 percent).

While I don’t usually write about this, I’m always fascinated by how others cover Microsoft’s financials. There’s an interesting dynamic here where Microsoft, as always focuses on the positive and the buzz markets on which Wall Street is fixated, and others either toe the line or, occasionally, provide real insight. Unfortunately, the latter is less common than the former.

First, the line.

Microsoft shares hit record highs, powered by growing cloud sales, Reuters notes, highlighting everything that Wall Street wants to hear in a single headline: Shares surging and Microsoft’s cloud business success. “Since Chief Executive Satya Nadella took over in 2014, Microsoft has been shifting away from its Windows operating system software and toward cloud services, in which customers move their computing work to data centers managed by Microsoft,” the piece breathlessly notes, ignoring the fact that Microsoft began this transition fully 15 years earlier than that and has been steadily working towards a non-Windows future for almost 20 years now.

Business reporting may trend more boringly than, say, celebrity “news,” but it is no less resistant to highlighting invented controversies in order to drive clicks and views. For example, CNBC, that bastion of the click-bait headline (kidding) leads with, “Microsoft reports Q4 Intelligent Cloud revenue of $11.39B, up 19% YoY, with Azure revenue up 64% YoY, its lowest growth rate in at least four years,” as if that is in any way significant from a negative standpoint.

It is not. As I’ve noted repeatedly in the past, Microsoft Azure---which had once consistently seen heady growth rates north of 90 percent ---had to slow down from a growth perspective as the business matured. And this has happened in recent quarters. In FY19 Q3, the Azure business grew by about 71 percent. This past quarter, it was 64 percent. Aside from the fact that no businesses can be accurately compared quarter-over-quarter---that’s why we measure change YOY---64 percent is incredible growth. It is a cause for celebration, not for concern.

Azure is also outperforming expectations as it cements its number two position in the market behind Amazon AWS, another cause for celebration. Analysts had expected Azure to deliver $11.02 billion in revenues in the quarter, but the figure came in at $11.39 billion. That partly explains why Microsoft shares surged after it released ...

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