“Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare,” said Satya Nadella, CEO of Microsoft. “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day.”
Microsoft’s mission is to empower every person and organisation to achieve more. This is quite a lofty mission, but arguably their mission from the 1990’s to have a PC on every desk has largely been achieved. Since Satya Nadella has taken over as CEO, Microsoft has been transforming itself from largely a software (Windows, Office, Outlook) business to a services business – cloud (Azure, Office 365), commercial social media (LinkedIn) and gaming (Xbox).
Our view is that this is a good strategy as Outlook and Office is ubiquitous in the computing world. Migrating clients to a cloud-based model creates a stickier client base, with fewer sales and support requirements to serve those clients. Microsoft is also succeeding in monetising their social media platform, LinkedIn which is becoming a key platform for recruiting in most businesses.
The company trades at elevated price levels, after a good run from in 2017 and 2018. But, with a focus on transforming the business into a cloud and services business, there is potential to grow revenues and margins. Microsoft does face stiff competition from Amazon, Google and others in the cloud computing arena. An added risk is that it could face selling pressure if there is a broad tech sell-off.