Microsoft earnings Q2 2019

Shares of Microsoft stock fell as much as 4 percent Wednesday after the company issued its fiscal second-quarter earnings report with slightly lower revenue than expected.

Here are the major numbers:

  • Earnings: $1.10 per share, excluding certain items, vs. $1.09 per share as expected by analysts, according to Refinitiv.
  • Revenue: $32.47 billion, vs. $32.51 billion as expected by analysts, according to Refinitiv.

Revenue increased 12 percent year over year in the quarter, which ended on Dec. 31, Microsoft said in a statement.

While Microsoft again declined to disclose exact revenue for the Azure cloud business that’s contributed to the company’s success in recent years, Microsoft did say Azure grew 76 percent, which is flat sequentially from the previous quarter.

Given comments from Intel, Juniper and other companies related to spending on infrastructure, Microsoft investors had reason to be concerned about what that means for Azure, said Brent Bracelin, an analyst at KeyBanc Capital Markets who has a “buy” rating on the stock. Bracelin had predicted around 74 percent growth, or $2.85 billion in revenue.

Microsoft said it collected $9 billion in revenue from its Commercial Cloud category, which includes the Azure public cloud, commercial subscriptions to the Office 365 productivity software bundle, the Enterprise Mobility and Security products and commercial LinkedIn services.

The unit was up 48 percent, reflecting a sequentially higher growth rate from 47 percent one quarter ago. Bracelin had estimated it would rise 44.8 percent this time around. The gross margin for Commercial Cloud held steady sequentially at 62 percent.

Azure is second to Amazon Web Services in the market for cloud infrastructure, which lets companies offload their computing and data storage. Bracelin predicted Azure would contribute $2.85 billion in the quarter, implying around 74 percent growth, down sequentially from the prior quarter. Amazon, which publishes results tomorrow, is expected to report AWS revenue of $7.3 billion, according to analysts surveyed by FactSet.

“Within the next five years I don’t envision Azure catching up,” Bracelin said in an interview this week. He said that within 10 years, Azure could be bigger if AWS is still part of Amazon.

“The debate becomes at some point, do’s ambitions limit the opportunities for AWS because of the competitive aspirations they have, that just limits the ability for AWS to grow,” Bracelin said.

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