Microsoft has Another Blowout Earnings Report Under Nadella's Leadership

Over the past 4 years that Satya Nadella has been CEO of Microsoft, we have seem some sort of extraordinary transformation. Microsoft has gone from being the poster boy of monopolistic greed to one of the most innovative tech companies around. In order to accomplish this, Nadella has focused on revamping two main parts of Microsoft's business. First, he has made many of the companies products subscription services, such as Office 365, which is an example of SaaS (Software as a Service). Second, he as embraced the shift to the cloud, by focusing his company's resources on building up the Microsoft Azure platform. On top of this, Nadella has made some big acquisitions, acquiring LinkedIn for 26 billion in 2016 and more recently, acquiring code-sharing site GitHub in 2018, further demonstrating his vision of innovation and open-source software.

Microsoft reported in its earnings call that its "Commercial Cloud" business, which contains cloud products such as Azure as Office 365 had revenue rise by 53%. It also said that its revenue for Azure increased by 89% from a year ago. This should be very scary for Amazon, since this 89% growth rate is much higher than Amazon Web Services' 45% growth rate that it reported a year ago. With such a high cloud growth rate, Microsoft seems to be in the process of dethroning Amazon as the largest cloud service by revenue.

Even more good news arose for Microsoft Azure recently after it was reported that both Walmart and Kroger have made deals with Microsoft to use its cloud for IoT as well as e-commerce. It's obvious why these companies didn't chose Amazon, as it directly competes with them in e-commerce. 

Another less reported but important statistic in Microsoft's earnings is 7% year-over-year increase in Microsoft's Windows OEM business. Satya Nadella took a big risk three years ago when he announced that Windows upgrades would now be free, and people thought he was being foolish. The truth of the matter is that Nadella's decision allowed consumers to always use the latest and greatest Windows, and allowed Microsoft to minimize security problems with over 700 million computers being powered by Windows 10.

The truth of the matter is, during Steve Ballmer's years at Microsoft, Microsoft's stock mainly went sideways. Even though he did unfortunately take the helm at the height of the dotcom bubble, Microsoft's stock largely under-performed the market. On the other hand, under Satya Nadella's leadership, Microsoft's stock has gone up 300%, outperforming the broader S&P 500 by over 240%. Microsoft's future definitely feels strong, and with a P/E ratio of 58, unprecedented for a company of this size (other than Amazon) investors surely have confidence over the company's long term growth prospects.

Microsoft CEO Satya Nadella