Microsoft Corporation (MSFT) Q2 Earnings: They’re Good … Just Not Great

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Microsoft Corporation (NASDAQ: MSFT ) just pulled off a pretty good fiscal second quarter. The cloud continued to provide a lift for the company, which also saw a positive impact from its LinkedIn acquisition. But it appears Wall Street had already factored much of this in, as MSFT stock was up just less than 1% in Thursday's after-hours trading.

Should Bill Gates Sell His Microsoft Corporation (MSFT) Stock?

Source: Via Microsoft

Shares may have been due for a breather, though. Since late June, Microsoft stock is up by about 33%.

For the quarter, earnings grew by 3.6% year-over-year to 79 cents a share and revenues improved 2.2% to reach $25.3 billion. That's good for a small beat on the top line, and an analyst match on the bottom line.

Here are some of the highlights of the Microsoft earnings report:

  • The company returned $6.5 billion in buybacks and dividends.
  • Revenues in the Productivity and Business Processes rose 10% to $7.4 billion.
  • Revenues for the Office consumer products and cloud services jumped 22%
  • There are no 24.9 million Office 365 consumer subscribers.
  • Revenues for the cloud-based Azure business soared 93%.

This story has been updated.

Microsoft Stock and The Cloud Opportunity

Over the past few years, Microsoft CEO Satya Nadella has been doubling down on the cloud market, where there's plenty of room for growth. According to Gartner, total global spending is forecast to increase from $204 billion in 2016 to $318 billion by 2019.

The irony is that the main rival for MSFT is, Inc. (NASDAQ: AMZN ), which currently dominates the cloud market. SAP SE (ADR) (NYSE: SAP ), International Business Machines Corp. (NYSE: IBM ) and Oracle Corporation (NYSE: ORCL ) have been notable laggards, but they're ramping up their efforts.

For holders of Microsoft stock, it is important to note that the success with the cloud has not been just about being early to the game. MSFT has some some incredible advantages, such as a trusted brand, years' of experience with mission-critical systems and a global infrastructure.

What's more, Microsoft has been smart and aggressive about acquisitions. LinkedIn - which provided MSFT with a massive professional network and even core next-gen cloud strategies - ia a clear case for this. There also should be nice synergies for integrations with the Office franchise, Skype and Yammer.

Also encouraging is Microsoft's progress in revamping its old-line products, then moving them toward the cloud. Just look at Dynamics, a customer relationship management (CRM) product. Dynamics revenues increased 7% year-over-year in the latest quarter, primarily driven by the cloud version. This could be a sign that MSFT is gaining ground on the giant in the space,, Inc. (NYSE: CRM ).

Bottom Line on MSFT Stock

Yes, Microsoft does have issues, such as the PC side of the business, which continues to lag. In Q2, revenues here dropped 5% to $11.8 billion. But a big part of this was an expected drop in phone revenues; once you dig into the numbers, you'll see a 5% increase in Windows OEM products.

Going forward, MSFT stock could get a nice lift from the expected tax changes from the Trump administration as well. A tax repatriation would allow the company to bring back more than $113 billion from offshore accounts. That would allow for more acquisitions, stock buybacks and maybe a special dividend.

All of that would be key in keeping shares in bull mode.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli . As of this writing, he did not hold a position in any of the aforementioned securities.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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