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.