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24 July 2020

Microsoft Remains Resilient

Ben Staniforth, Investment Analyst, Redmayne Bentley
 
Reporting this week, Microsoft produced another characteristically impressive set of results during 2020’s first quarter. The firm now adds its name to a string of big tech names which have benefitted from pandemic-based tailwinds. However, Microsoft’s retail exposure showed that its business isn’t fully COVID-proof.

A 13% rise in year-over-year revenue was mainly driven by the significant uptake in remote working worldwide, as firms rushed to improve their working from home capabilities. Microsoft’s Intelligent Cloud unit produced revenues of US$13.37bn, surpassing expectations of US$13.11bn, with results driven by an impressive 47% rise in revenue growth at the firm’s Azure cloud platform.

Satya Nadella, CEO of the tech giant, also noted the increased “momentum to a powerful shift” towards cloud computing, adding that many companies were only now making the switch to digital technologies. This uptick in new customers utilising Microsoft’s range of digital offerings will not only provide a short-term boost to sales, it is also likely to positively impact the firm years into the future. Microsoft’s subscription-based pricing model means that while there is no up-front fee for its services, monthly payments are required for continuous usage and provide the firm with consistent, visible returns, a trait relished by investors.

However, producing a slight drag on performance was the firm’s retail operations, many of which have permanently closed (with the exception of London, Sydney, New York and Seattle) in the past month as the firm looks to move towards “digital storefronts”. The firm booked a one-time US$450m charge relating to store closures and while this will impact fourth-quarter profits, Microsoft is likely to benefit in the long term from improved margins related to its switch to an asset-light, digital dominated strategy.
 
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Microsoft Remains Resilient
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