MSFT earnings

MSFT earnings today were a breath of fresh air to help cope with the current market volatility, at least for me.

Although I am already high conviction in my current holdings, the indiscriminate selling of stocks for reasons unrelated to business performance is never going to be pleasant.
I do find it helpful for myself to constantly search for and review news and numbers that tell me my companies are likely to continue to outperform, and remind myself that the stock price isn’t disrupting the business.

Which is why I was glad to go through MSFT’s earnings today as it gave me more confidence in my positions that experience the ongoing cloud adoption as tailwinds. (My current holdings - many are cloud related businesses - DDOG, SNOW, NET, ZS, S, MNDY, BILL)

The after-hours today was a testament to market sentiment of shoot first, ask questions later. When MSFT released earnings in a press release the market sold heavily in response, while waiting for guidance to be said on the conference call. I noted DDOG and SNOW were simultaneously machine-gunned in sympathy and dropped 4%.
Then the market snapped up shares as the guidance, of course, was very positive when it came to the cloud/Azure. (This is not a guarantee of how MSFT or other stocks will perform tomorrow, who knows, but was nevertheless interesting to see the action unfold in real-time)

It was great to see the reinforcement that we all already knew.
The couple months since last earnings report, the business climate didn’t come to a screeching halt.
The sector trends don’t hit a wall just because stock prices fell.
In MSFT’s conference call, they told us that the shift to cloud is not stopping, that cloud usage growth is accelerating, growth is sustained and not just pulled forward from COVID, IT spending is only going to keep growing for years to come, supply shocks and supply chain issues haven’t caused any problems to cloud, and notably, omicron/inflation was never brought up as a caveat (for cloud).

Many of our companies have the same fortunate tailwinds and immunity to certain headline macroeconomic problems!

And, what a behemoth these hyperscalers have become. Azure grew at 46% YoY while their cloud business is pulling in $18 BILLION in a single quarter. I don’t know how much their cloud business should be worth as a stand-alone but MSFT is worth $2 trillion as a whole.
I tell myself there is incredible potential that a couple of my holdings have, should they continue to execute and prove to have insane hypergrowth durability for years (like SNOW and NET)

Conference call highlights:
Office commercial licensing decreased 17%, in line with expectations and consistent with the ongoing customer shift to the cloud.

Azure and other cloud services growth of 46% was driven by continued strength in our consumption-based services.

In our on-premises business, we expect revenue to decline in the high-teens, with continued customer shift to the cloud.

For Intelligent Cloud, we expect revenue between $18.75 billion and $19 billion. Revenue will continue to be driven by Azure…In Azure, we expect revenue growth to be up sequentially in constant currency, driven by our Azure consumption business, with strong growth on a significant base.

And then in the Q/A:

Analyst: So the pandemic clearly accelerated everyone’s time line to migrate to the cloud, even if there wasn’t necessarily a big pull forward there. As we think about a post-Omicron world, where there is some level of office reopenings and visibility into that, how should we think about the potential to see maybe another wave or another acceleration of those cloud migrations with that ability to have in office and have hybrid work? Maybe walk us through that.

CEO: “So we are seeing differences in demand. I think the stable state here would be the structural shift that’s happened because of the pandemic combined with even some of these constraints, whether there’s supply shocks or others will hopefully go away… But the one thing that isn’t going to go away is the need for increasing levels of digitization…As a percentage – I always go back to that simple formula. As a percentage of GDP, what is IT spend broadly defined and what is it going to be a year from now, 2 years from now, 5 years from now, 10 years from now? It’s just going to be more.


I’d like to add some more data from MSFT investors presentation.

Last 5 quarters growth in Azure and other cloud services (latest first, in constant currency):

48% 46% 45% 48% 46% (latest quarter)

For me - the strong trend in growth holds well - especially taking into account that each quarter in absolute terms numbers are increasing in many billions. Annual run-rate of this business now is somewhere between 40 and 50b (probably around the middle of that). And this is still growing in mid to high 40s!

Here is another quote from the presentation:

“Azure and other could services revenue grew 46% driven by strong demand for our consumption-based services”.

IMO this bodes well for our companies with consumption based models - DDOG and SNOW. Our companies with subscription based models should be also profiting from this fundamental strength in cloud business/continuing migration to the cloud.


Thank you for sharing. I think anyone on the board should go through MSFT’s earning call transcript. The report is bullish for most stocks covered on the board.

One in particular that got my attention (outside of the obvious companies) is super bullish for MNDY (let’s see how market responds to it):

“Organizations are using Teams to run their business with collaborative applications that bring business process data right into the flow of work. Monthly usage of third-party applications and custom-built solutions has grown 10x in the last two years, with new and updated apps this quarter from Atlassian,, SAP, and Workday.”

And towards the end of the call - and all of this is coming from Satya Nadella

"Coming out of the pandemic, we were hit with supply chain issues. So supply chain insights became the most important thing. So that’s where the demand picked up. So as I look at our portfolio, we are seeing a slightly different set of solutions.

Same thing with Power Platform, right? When you are sort of saying we have a labor force shortage and we need to do more with less, guess what, you turn to more automation tools, and that’s where something like Power Platform, especially given you can even train your first-line workers to be able to be app builders and automate workflows. That’s proving to be a productivity driver."

"So we are seeing differences in demand. I think the stable state here would be the structural shift that’s happened because of the pandemic combined with even some of these constraints, whether there’s supply shocks or others will hopefully go away.

But the 1 thing that isn’t going to go away is the need for increasing levels of digitization, both in terms of tools that people use to improve the productivity of your OpEx and the COGS you have in your enterprise will probably now have a digital component to it because that’s where the leverage of cost will come."

I find the above statements super bullish for MNDY and the likes.


Adding some more data mining of the msft earnings call, on the data aspect specifically. For companies that store, move and analyze data, especially snow, mdb, cflt, the below comments are interesting.

Satya Nadella – Chief Executive Officer (opening comments)
Cosmos DB is the database of choice for cloud-native app development at any scale. Data volumes and transactions increased over 100% year over year.
mostlylong: Cosmos DB is an Azure database similar to mongo db, but the above comments should be positive for data focused products in general.

Amy Hood – Chief Financial Officer (opening comments)
Our capital investments, including both new data center regions and expansion in existing regions, continue to be based on significant customer demand and usage signals.

Amy Hood – Chief Financial Officer (response to analyst question)
…And for a second, let me then connect that, as you asked, into how to think about the guide for Azure on a constant dollar basis being up sequentially into Q3. I sort of continually remark that these can move around a few points here and there, and yet have the consistent sign of consumption be steady. And we saw that again, frankly, Q1, Q2, Q3, consumption growth by end market, by industry, by customer size has remained quite steady. And so while you’ll see some volatility in that number, you know, increased data usage, the data products have really been a strong performer


Snowflake stock is basically the same price it was on the day it opened after it’s IPO at $245/sh. 1.5 years later and the stock is at $252 +/-. This is after 2.5x growth in product revenues and rapidly expanding margins throughout the business. Berkshire and other funds got to buy in at the IPO price of $120/sh, and the stock is even cheaper that that price now!!

So we get 1.5 years of amazing execution from this company, and the stock is currently cheaper than it has ever been. Yet the market still shrugs off news like this from the MSFT earnings and tanks 10% as soon as the FED opens it’s mouth. When are the rapidly increasing fundamentals going to catch up to the valuation here?



When are the rapidly increasing fundamentals going to catch up to the valuation here?

The key is the MSFT has positive earnings, and that is what people are looking for now. With inflation and rising rates, the market is scared of high growth companies that might report positive earnings in 5 years. You may say that is irrational, but they say our beliefs on these high-growth stocks were irrational. They are right at the moment, but we might be right again a year from now.

That is to say, the only fundamentals the market cares about is growing positive earnings.