Santa Barbara, CA – (StockNewsDesk) – 10/24/2014 — Microsoft shares rocketed more than 3% higher on a better than expected third-quarter earnings report, just under its 52-week highs. New CEO, Satya Nadella continues to wow Wall Street, as the company was able to continue growing revenues, while keeping profit margins intact.
Most of Microsoft’s sales growth came from its Windows phone unit, Surface tablets, and Azure, the cloud computing platform. There was some concern among investors with a slew of negative reports coming from enterprise service providers, like IBM, SAP, Oracle, and EMC, of a slowdown in corporate spending causing downward pressure on margins in the cloud business.
Microsoft managed to buck this trend, showing continued growth in cloud sales as well as upholding margins. Due to the shift away from software, margins have steadily trended lower; however, this quarter margin was steady from the previous quarter. In the Azure division, Microsoft’s fastest growing cloud, margins were up to an impressive 192%.
Satya Nadella has continued his run of success as the head of Microsoft, with his consistent focus on cloud services and his willingness to rethink old Microsoft dogmas, such as allowing competing products like Linux to be run on Microsoft servers, a strict departure from previous CEOs, Steve Ballmer and Bill Gates. The cloud remains a small portion of Microsoft’s overall business, yet it is seen as the company’s future, as the world shifts away from the personal computer and Windows to mobile and tablets.
Sales on its cloud platform grew by 120%, overall, on a year over year basis. Analysts expect Microsoft’s cloud revenue to hit $6 billion in the next year. This would make Microsoft one of the biggest players in cloud computing, a significant shift from a few years ago, when it seemed Microsoft would miss this new trend like it had with mobile computing. Remember, before his elevation as CEO, Nadella was head of Microsoft’s cloud computing division.
Microsoft’s stock has been proven a hit with dividend minded value investors attracted by the company’s strong balance sheet and stable cash flows as well as growth minded investors, recognizing the company’s rapid success in cloud computing. This operating success has provided a massive tailwind to the stock price as it has risen almost 45% since the beginning of 2013. Additionally, during this time, Microsoft has paid a 3-4% dividend.
Microsoft’s dividend has been a huge lure to investors as it is higher than the yield on the ten-year treasury at 2.3%. Not to mention the potential of stock price appreciation under the surface as well as the company’s consistent record of share buybacks and dividend growth. These reasons have conspired to take Microsoft past even its 2000 peak when dividend payouts are included.
Wall Street has certainly taken kindly to Nadella as his appointment on February 4, 2014, coincided with an almost 10% bump in Microsoft’s stock price. Since then, the stock has trended higher, climbing 25% during his tenure. So far, Nadella’s decisions have worked out with a renewed push to market Surface tablets and Windows phones, despite early stumbles. amid calls by analysts to exit the business, and positioning the cloud as Microsoft’s future, as the legacy software businesses continue to generate cash but not growth.