Microsoft FQ4 18 – All enterprise

There is no real return to the consumer.

• Microsoft reported a great finish to its 2018 fiscal year as its enterprise business went from strength to strength and I think it is clear that there is no return to the consumer on the cards.
• FQ4 18 revenues / EPS were $30.1bn / $1.14, comfortably ahead of expectations of $29.2bn / $1.08.
• Full-year 2018 revenue topped $100bn for the first time.
• Azure cloud and Office 365 led the way with 89% YoY and 38% growth YoY respectively.
• This has really been the theme since Satya Nadella took over the company and while he has virtually given up on consumer, he has more than made up for it in the enterprise.
• I suspect that this quarter has also seen another market share gain on AWS whose growth slowed to 48% YoY in Q1 18.
• However, this will not trouble Amazon too much as it is still far and away the global market leader in cloud services.
• While Microsoft goes from strength in enterprise, its consumer assets are withering upon the vine underlining a question I have asked many times: why does Microsoft still own Xbox? (see here)
• Microsoft has moved to address this question once again with a new grouping called Modern Life Services.
• This basically includes gaming and other bits and pieces around Office and Cortana that aim to make productivity more accessible.
• This includes services like the Your Phone app on iOS or Android that allows the user to receive and answer SMS as well as drag and drop pictures and content between the phone and desktop seamlessly.
• This is pretty much what Apple already offers between iPhone and Mac, but this should have wider appeal given that there are many more Windows PC users and Android users than there are owners of both iPhone and Mac.
• Also included are added functionalities like focused inbox which can put a company mailbox and personal mailbox together in the same place.
• I don’t think that this is really about addressing the consumer but more about adding functionality to Windows 10 and Office 365 to make it stickier for prosumers and content creators.
• This is where the real return on investment lies and where I think Microsoft is really focusing.
• Hence, I do not see a return to the consumer but instead a continued shift towards the enterprise.
• This is where its core strengths are and where I think it should remain.
• Microsoft has had a great run and while the outlook remains pretty good, I can’t help thinking that taking some profits now might be a good idea.

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