Microsoft’s latest quarterly sales results beat Wall Street’s expectations, but they didn’t exactly excite investors.
The company’s shares were relatively flat in after-hours trading on Wednesday at $95.13.
On one hand, Microsoft said its fiscal second quarter grew 12% to $28.92 billion, beating analyst’s expectations of $28.4 billion. But other areas raised some concerns.
One possible source of caution was that commercial bookings, or deals that will result in later revenue, only increased 7% year-over-year compared to the previous quarter’s 14%. It’s even more pronounced when compared against bookings in the fourth quarter of 2017, when they rose 30% year-over-year.
Additionally, Microsoft gave tepid third quarter guidance for its “Intelligent Cloud” business unit for the third quarter, which includes a mix of technology including the fast-growing Azure cloud computing unit and the shrinking Windows for corporate data center servers. Sales in “Intelligent Cloud” in the coming quarter are expected to be $7.55 billion to $7.75 billion, down slightly from the $7.8 billion it recorded in its previous quarter.
Here are three big takeaways from Microsoft’s latest earnings report.
Gaming:
One analyst asked Microsoft (MSFT) CEO Satya Nadella during an earnings call about reports that Microsoft trails Sony when it comes to exclusive video games on its Xbox gaming console. Analysts view exclusive video games as an important metric to gauge whether consumers will want to buy a company’s video game console.
Nadella avoided directly comparing the Xbox with Sony’s competing Playstation gaming consoles, and instead explained that Microsoft’s gaming strategy extends beyond Xbox to personal computers and mobile phones. It’s similar to how Nadella pitches the company’s cloud business, in that he believes analysts shouldn’t just focus on Azure, in which Microsoft sells on-demand computing, but also the related services like Office 365.
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And like Azure, Microsoft does not reveal specific sales of its Xbox consoles.
Cortana:
An analyst also asked Nadella to address the notion that Amazon’s (AMZN) Alexa voice assistant appears to be more popular than Microsoft’s competing Cortana service, which the company has heavily promoted over the past few years. Nadella responded that Microsoft’s Cortana “investments are much broader” than simply using the voice assistant to perform tasks in people’s homes like playing music, and referenced work some healthcare companies are doing using Cortana’s underlying tech to build their own voice services.
He also said that Microsoft is willing to incorporate competing voice assistants into its own technology (Windows 10) and then mentioned Microsoft’s work with Amazon to make Alexa more compatible with Windows PCs.
“We will welcome it on our own devices,” Nadella said, presumably referring to bringing Alexa to more Windows-powered computers.
Acquisitions:
Like other U.S. companies, Microsoft can repatriate its overseas cash at a lower tax rate following the latest tax overhaul. Does that mean Microsoft will go on an acquisition spree in the U.S.?
Not necessarily, explained Microsoft CFO Amy Hood. She said that Microsoft has always found ways to buy U.S. companies, regardless of the situation.
“That being said I am pleased to be able to access the cash more easily and not have to go to the debt market to be able to make these choices,” Hood said.
