Microsoft (MSFT) ended its fiscal year on a high note, with fiscal fourth-quarter revenues and earnings per share exceeding analysts’ expectations. These figures increased by 21.3 percent and 48.6 percent respectively, thanks to a dramatic rise in revenue from Microsoft’s Azure Cloud service.
What’s next for Microsoft? Will that growth persist into fiscal 2022? These are the details from Microsoft’s earnings call – and the bull case for Microsoft stock in the coming year.
Microsoft Reports Fiscal Fourth Quarter 2021 Results
With a market cap of more than $2 trillion, Microsoft is a massive company. It is home to a long list of high-demand products and services, as well as a collection of new initiatives that promise to deliver the future of technology. Its success in developing the products consumers and businesses want is demonstrated in its fiscal fourth-quarter 2021 results.
In fiscal fourth-quarter 2021, all of Microsoft’s core businesses worked together to deliver overall growth. Revenue totaled $8.1 billion – a 21 percent increase year-over-year – and gross margin increased 25 percent to $6.5 billion year-over-year.
Operating income came in at $5.7 billion, which is a 42 percent increase year-over-year.
The Intelligent Cloud segment achieved its revenue growth as a result of increasing demand for Azure cloud services. One of the most interesting ways in which Microsoft’s cloud services differentiates itself from the competition is through dedicated industry clouds.
Over the past year, Microsoft launched industry clouds for nonprofits, retail, financial services, manufacturing, and healthcare. In the fiscal fourth quarter, the new Microsoft Cloud for sustainability was introduced, emphasizing the company’s commitment to sustainable initiatives.
On the Productivity and Business Processes side, Office 365 Commercial and LinkedIn are the biggest contributors to revenue growth. LinkedIn has a particularly impressive story, with Microsoft reporting a total of 774 million members. Those members are spending more time on the platform, with sessions increasing by 30 percent year-over-year in the fiscal fourth quarter.
It’s also worth noting that LinkedIn-specific advertising revenue exceeded the $1 billion threshold for the first time during this quarter. That’s an increase of 97 percent year-over-year.
Microsoft Announces Fiscal Year-End 2021 Results
Despite the external challenges impacting businesses worldwide over the past 12 months, Microsoft announced fiscal year-end 2021 results it can be proud of. Revenue increased by 18 percent year-over-year to a total of $168.1 billion, and operating income increased 32 percent to $69.9 billion.
Microsoft’s net income totaled $61.3 billion (GAAP), an increase of 38 percent. Non-GAAP results were $60.7 billion, which reflects an increase of 37 percent. Diluted earnings per share grew 40 percent to $8.05 (GAAP), and non-GAAP came in at $7.97 – an increase of 38 percent.
Much of this success came from impressive performance by Microsoft’s Intelligent Cloud segment. Though the company hasn’t yet caught up to market leader Amazon Web Services (AWS), Microsoft’s cloud services have become the solution of choice for many industry-leading companies.
That is, in part, because Microsoft offers unique features and advantages unmatched by competing products. For example, Microsoft is the only cloud provider capable of supporting multi-cloud, edge, and hybrid needs for all types of organizations.
Microsoft is committed to creating infrastructure that is unmatched by its rivals. To that end, the company added new data center regions on five continents – 15 countries – in the past year. That means organizations in those regions have faster access to cloud services.
Thousands of companies rely on Microsoft infrastructure for the SAP solutions that keep business flowing. Microsoft’s client list includes organizations like L’Oreal, Campbell Soup (CPB), ServiceNow (NOW), Mars, and Morgan Stanley (MS).
Preparation for universal access to 5G is well-underway. Microsoft Azure was AT&T’s choice to power its 5G core network. Over the past 12 months, Microsoft launched Azure edge services, which dramatically improves performance for operators and enterprises.
Cloud services aside, Microsoft is building on decades of success with other products, applications, and services that consumers and businesses rely on every day to get the job done. One of the biggest jumps occurred in Microsoft Teams usage, as virtual work continues to be an important component of the larger COVID-19 containment strategy.
Where Dangers Lurk For MSFT
Microsoft has grown into one of the world’s largest companies, and historically, its stock has delivered generous shareholder returns. But it’s not without its share of obstacles to overcome.
In its earnings report, Microsoft noted more than two dozen issues that could derail revenues and/or profits if the company is unable to protect against them or mitigate the damage quickly. Examples include:
- Competition
- Cyberattacks
- Disclosure or misuse of sensitive data
- Supply chain challenges
- Quality concerns
- Government and regulatory obstacles
- Catastrophic events, such as the COVID-19 pandemic
Despite the potential dangers, industry experts have expressed virtually no concern that Microsoft will experience catastrophic losses.
First, the company is adept at risk management, which includes identifying areas that could lead to losses, then protecting against them.
Second, Microsoft has the resources and expertise to recover from even the most complex crisis. That’s good news for investors, as it means less risk to the value of their stock – especially long-term.
The Bull Case for Microsoft Stock: What’s Next?
Management projects another strong quarter from Microsoft’s Azure cloud computing service. Though the last year reflected significant growth, it is likely that the cloud computing segment will exceed last year’s performance. The fiscal first-quarter gross margin is expected to increase because Microsoft continues to invest in enhancements that support clients’ success, leading to increased usage of the platform.
In terms of specific revenues by business segment, Microsoft projected between $14.5 billion and $14.75 billion from productivity and business processes. Revenues from the on-premises business unit will trend down, perhaps as much as 20 percent. However, that’s not a concern – revenue given up by on-premises services is a result of the transition to cloud computing.
Office Consumer is projected to grow in the high single digits as demand for Microsoft 365 for home use remains strong. On the social media side, LinkedIn is gaining momentum, and growth is expected in the high 30 percent range.
Total revenue for the Intelligent Cloud business is projected to come in between $16.4 billion and $16.65 billion. All of that, combined with the More Personal Computing, Windows Commercial, and Gaming estimates, has Microsoft calling for double-digit revenue growth. In other words, there is a strong bull case for Microsoft stock, which has analysts in agreement that Microsoft stock is a buy.
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