What’s the world’s highest quality structural growth stock?

Chief Investment Officer and founder of Aitken Investment Management
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Microsoft reported an incredibly solid set of numbers to close out their 4Q19/FY19, with revenue and earnings beats relative to consensus and their guidance from top to bottom line. Some of the revenue strength (and related margin upside) was due to a pull-forward of demand related to tariff concerns but the bulk of the upside was from enterprise contracts where businesses opted for higher priced plans (particularly Office 365), or extended both the terms and scope of existing engagements to incorporate more Microsoft solutions into their internal business digitization plan.

Particularly noteworthy is the ongoing margin expansion as Azure (cloud) scales, with CFO Amy Hood referring (yet again) to ‘significant improvement in Azure gross margin’ driving Commercial Cloud gross margins 600bps higher. Another positive is the extremely strong pipeline of business already secured: contracted revenue (but not yet recognised in the income statement) was $91bn – up 25% from June 2018. Given that clients are signing longer-term contracts, only about 50% of that will be recognised in the next year.

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