Identifying Microsoft’s Key Growth Drivers

In fiscal 2Q18, Microsoft’s (MSFT) total revenues reached $28.9 billion, up 12.0% year-over-year.

Aaron Hemsworth - Author

May 1 2018, Updated 5:54 p.m. ET

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Cloud and Office 365 products driving business

Microsoft (MSFT) dominates the IT space with a strong product portfolio. The huge demand for its cloud platform, Azure, is a key catalyst for the company’s business. Microsoft’s overall cloud service—which includes Office 365 commercial, Azure, Dynamics 365, and other cloud properties—grew at a CAGR (compound annual growth rate) of 8.7%.

Apart from Microsoft, Amazon (AMZN) and IBM (IBM) also have a strong foothold in the cloud space. Microsoft is enhancing its cloud technology with high security and AI (artificial intelligence) platform for better analysis of data.

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Microsoft is the pioneer in office-related products, and its Office 365 gains adoption across the consumer and commercial sectors. The number of Office 365 consumer subscribers increased at a CAGR of 2.7% in the last five quarters. Its commercial and consumer products as well as cloud service revenues maintained double-digit growth in the last five quarters.

From the chart above, we can see Microsoft’s total revenue growth in the last five quarters. During this period, the revenue grew at a CAGR of 2.9%. In fiscal 2Q18, its total revenues reached $28.9 billion, up 12.0% YoY (year-over-year).

Other key drivers

Microsoft’s Gaming business is another key catalyst. Its revenues in the last five quarters maintained steady improvement, driven by the growth in the number of Xbox Live monthly active users. The IT giant exited fiscal 2Q18[1. fiscal 2Q18 ended December 31, 2017] with 59.0 million active users, up 13.5% YoY. Plus, the launch of Xbox One X aided the company’s Gaming business growth.

Other drivers, including the Surface Laptop and LinkedIn, showed strong growth potentials for the company. The Surface device, which is powered by LTE, can downplay competition from other tablets. The successful integration of LinkedIn helped the unit outpace the company’s revenue guidance of $1.2 billion on LinkedIn in fiscal 2Q18 by $100.0 million.


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