With revenue up 14% yoy to $24.5bn, Q2 was a good quarter for Microsoft but the numbers are just the sum of the operation not the movement, and the results presentation did not address the many outstanding questions about the business.
Rumours abound but there was no official update on the CEO front, although the hunt does not appear to be a distraction given the 14% revenue uplift. There was no reference to Windows 7 vs. Windows 8/8.1 or commentary about whether the company will distance itself from the Windows 8 brand come the April Build conference (see here). No news either on Office for non-Microsoft mobile devices, or on how the ‘One Microsoft’ strategy is playing out. Given limited insight in terms of the colour and movement behind the results there is a real sense that Microsoft is in a holding pattern until the new CEO is announced and on-board. The new reporting structure (introduced with the Q1 results) also reduces visibility into how the segments are performing.
The numbers were pretty good and beat market expectations on the revenue front, resulting in a 4% rise in the share price in after-hours trading. Net profit was more modest, with a 3% rise taking it to $6.6bn. Revenue moved upwards despite another drop in Windows sales, due to Xbox and Surface tablets sales in the consumer division, plus cloud services across the business. The Commercial division, which includes enterprise products such as SQL Server, System Center and commercial cloud revenue (all had double digit growth) as well as Azure and Office 365 (triple digit growth), played its part and performed well with revenue up 10%. Products like SQL Server and Office 365 are core to its cloud services and have consistently been growing – and with less trauma than the Surface devices and operating system areas.
The verdict on Q2 (to December 31 2013) is that Microsoft performed well despite the questions about its non-financial activities and benefited from the rising tide that is the cloud - and the consumer market. But it needs to start answering the outstanding questions sooner rather than later.