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Understanding Microsoft’s Top-Line Growth through Its Bottom Line

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MSFT’s segment contributions to revenues and margins

Microsoft’s (MSFT) MPC, Productivity and Business Processes, and Intelligent Cloud segments contributed ~41%, 31.5%, and ~28.5%, respectively, to the company’s total revenues in fiscal 4Q17 (calendar 2Q17). These segments’ operating margins were ~31.1%, 28.3%, and 40.6%, respectively, during the same period. The MPC segment was clearly a drag on the company’s performance, both in terms of revenue and operating margin.

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Microsoft’s cloud growth story

Microsoft’s commercial cloud annualized revenue run rate grew 56% to hit $18.9 billion in fiscal 4Q17. It now represents close to 20% of company’s overall revenues.

Notably, Bloomberg, citing a survey published by Credit Suisse earlier this month, has stated that 40% of enterprise IT (information technology) executives responded to Azure as their preferred product for cloud requirements. Among major peers—Amazon.com (AMZN), IBM (IBM), and Google (GOOG)—Microsoft managed to increase its market share by the highest percentage.

Investors interested in gaining exposure to Microsoft can consider investing in the SPDR S&P 500 ETF (SPY). SPY invests ~2.4% of its holdings in Microsoft and has an ~8% exposure to the application software sector.

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