Microsoft Corp. (NASDAQ: MSFT) surprised the stock market on Wednesday when it released better than expected quarterly earnings with strong revenue growth. Microsoft is the latest major company, following Twitter (NYSE: TWTR) and Lockheed Martin (NYSE: LMT), to overperform in what was expected to be a slow first quarter.
Microsoft Outperforms Expectations
Analysts originally predicted a downbeat earnings season with stunted performance from the world’s largest publicly traded companies. It has been able to exceed expectations, giving investors confidence for the weeks ahead.
The software and services giant saw its shares reach a peak of $130.50 during after-hours trading on Wednesday, with a market capitalization over $1 trillion. Trading eventually closed at $129.35, leaving Microsoft up 3.47%, with a market capitalization of $962.4 billion. It remains the second most valuable publicly traded company, behind Apple (NASDAQ: AAPL).
Positive stock movement is being driven by Microsoft’s latest earnings report. The company generated revenue of $30.60 billion in the previous quarter, an increase of 14% year over year. The result beat the analyst consensus of $29.84 billion. The company remains highly profitable with net income increasing 19% to $8.80 billion.
Earnings per share for the quarter hit $1.14, beating the analyst consensus of $1.00.
The dramatic increase in revenue comes partially from Microsoft’s Intelligent Cloud business segment. Total revenue in this department was $9.7 billion. Microsoft’s shift to subscription-based software services is definitely helping the bottom line here.
LinkedIn, Microsoft’s business-focused social networking site, increased revenue by 27%.
More Personal Computing, a business segment which includes Xbox, Windows, and Surface products, generated an impressive $10.7 billion.
An Earnings Warning for the Next Quarter
Despite overperforming in the most recent quarter, Microsoft warned investors that the next earnings call may come in below Wall Street expectations. Analysts expect to see $32.6 billion in total revenue in the next quarter, whereas Microsoft has offered guidance in the range of $32.2 billion to $32.9 billion. Even so, this would still represent a strong quarter for the company, which had its best fiscal year in 2018.
Microsoft is one of the most popular stocks for good reason. It has consistently grown throughout its existence, and a stable (but relatively modest) dividend has helped to boost income for investors. Historical stock splits mean that it is still affordable, and a compelling option for investors who want long term growth.
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