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Microsoft’s Renaissance Continues to Bloom

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Microsoft (NASDAQ:MSFT) and Amazon are dominating IaaS Space as quarterly results from Microsoft and Amazon reflected strong demand for IaaS-related cloud computing services. It’s no secret that Microsoft has its sights set on Amazon (NASDAQ: AMZN) in the cloud computing space. While Amazon Web Services (AWS) has long held the lead in the area it pioneered, Microsoft’s Azure is coming dangerously closer each year. Azure again took the spotlight in the last quarter, with revenue up 73% year over year and 75% in constant currency.

Announcing its third quarter results for the period ended on March 31, 2019, Microsoft demonstrated solid growth across each of its segments as in previous periods. The productivity and business processes segment increased 14%, several smaller businesses within the segment also achieved notable results as LinkedIn revenue grew 27% due to record engagement levels. Both commercial and consumers versions of Office performed well, with intelligent cloud producing the most impressive gains, growing to $9.7 billion, up 22% year over year. Solid growth has in fact become common practice for the company in recent years. Furthermore, while Amazon’s share held steady, Microsoft’s cloud share increased by more than 3 percentage points year over year, growing from 13.5% of the market to 16.8%.

Revenue for the quarter grew to $30.6 billion, up 14% year over year, beating both analysts’ consensus estimates ($30.1 billion) and the high end of management’s forecasts ($29.8 billion). More than half the $700 million increase in revenue came from the company’s hybrid cloud business, with continued robust Azure growth, which grew 73% year over year. Azure continues to make meaningful strides closing the functionality and usability gap with its competing Amazon Web Services., which topped out at and, respectively. Azure continues to see significant adoption as more than 95% of the Fortune 500 run their workloads on its cloud. What’s even more impressing is that a better part of the company’s revenue worked its way down to the bottom line. Net income amounted to $8.8 billion, increasing 19% year over year and resulting in earnings per share of $1.14, up 20% — also easily surpassing expectations of $1.00.

While the company is still very much a consumer-centric operation due to its legacy, many efforts are focused at its cloud computing platform. Its various segments are simply taking turns at being the standout performer year to year.

Microsoft is classified as a growth stock due to its earnings and cashflow growth. Investors are mostly after profit so nothing is more important than earnings growth. While the historical EPS growth rate for Microsoft is 13.2%, its projected EPS growth is 18% this year, This rate greatly exceeds the industry average of EPS growth of 8.8%. Yet, cash is gives life to any business. Higher-than-average cash flow growth is more beneficial for growth-oriented companies which are in a place to use it effectively than for mature companies that already told their story. That’s because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds. Gaining funds is what forced Facebook Inc. (NASDAQ:FB) to make its IPO debut despite the concerns of its CEO and founder. Well, year-over-year cash flow growth for Microsoft is 16.9%, which is higher than many of its industry peers, even the industry average of 8.7%. It’s also worth taking a look at the historical rate too to gain a perspective. The industry average is 7.1% and  company’s annualized cash flow growth rate over the past 5 years has been 9.3%. This also confirms the healthy trend that Microsoft is managing to successfully maintain during the last few years.

But Microsoft has even more than that, it has promising earnings estimate revisions as the current-year earnings estimates have been revised upward.

Microsoft is also doing its best to woo developers in all areas of its business as it recently changed its long-standing policy to allow them to keep  as much as 95% of the revenue from their creations. While this isn’t directly applicable to Azure, it illustrates the company’s strategy to court developers and draw them into its ecosystem.

The fiscal third quarter showed once again that Microsoft’s combination of business software and cloud-computing is nothing short of success. Investors were so impressed that they managed to push Microsoft’s market cap briefly above $1 trillion on the day following the release, making Microsoft one of only three U.S. companies in history to briefly exceed the $1 trillion market cap. And Microsoft owes it to all to its growing business, a combination of its legacy software and new cloud-based computing.

For its fiscal fourth quarter which will end on June 30, Microsoft is expecting its revenue to be in the range of $32.2 billion to $32.9 billion, and a consequent growth between 7% and 9%. The company is also forecasting cost of goods sold of $10.75 billion and operating expenses of $10.75 billion, both at the midpoint of its guidance. This would result in operating income following accordingly, of about $11.05 billion, also at the midpoint of its guidance. For the upcoming fourth quarter, analysts estimate a revenue to increase 8.4% year to year to $32.63 billion and earnings per share to increase 4.4% to $1.18.

Microsoft has seen something of a renaissance in recent years, combining its more recent success in cloud-computing with its legacy software to once again become a business powerhouse. Microsoft is consistently showing with its performance that there isn’t any reason to believe that this will change any time soon. Any stock can see a spike in price, but it takes a real winner to consistently outperform the market.

 

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Earnings

Toyota’s News: Redesigned Corolla, New Investments and Partnerships

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Toyota Stock Market News

Toyota Motor Corporation (NYSE: TM) is managing something other automakers only dream of. The company is honouring its values while achieving sustainable growth for over a decade. The dependable Japanese giant continues to deliver on its promises as it prepares for an electric future.

A new sturdy yet sporty Corolla

On September 17th, the company announced a completely redesigned Corolla that now goes beyond just being a practical buying decision. The newly evolved Corolla has a sporty design, offering pleasurable driving and advanced safety equipment. Being built on Toyota New Global Architecture (TNGA), Corolla is ready to evolve to meet customers’ needs, according to Yasushi Ueda, chief engineer in charge of development.

Since its debut in 1966, this car is nothing less than adored by consumers all over the world and now, it will have its first hybrid version available to U.S. customers.

Hybrid strategy is actually paying off

Just like Honda Motor Co. (NYSE:HMC) with its 2020 CR-V Hybrid, Toyota is using its hybrid technology to position itself for future growth and transition to an all-electric future, despite the fact these energy saving vehicles do not qualify for government subsidies. But, this strategy is paying off as hybrid demand skyrocketed and the company proudly revealed in February that Lexus reached its 10 millionth vehicle sales milestone since its launch, with its 2018 sales performance achieving several ‘best-ever records’. And it is thanks to these figures that the Chinese government is also starting to see the potential of such vehicles so things can only get even better for Toyota. As the saying goes, persistence is the key to success and these two companies have been quite brave in sticking to HEVs.

New Investment – $391 Million Goes to Texas’ San Antonio Plant

This will be Toyota’s first expansion in nine years at the plant that produces its Tundra and Tacoma pickup trucks. It is the part of the company’s strategy to invest $13 billion in its U.S. operations over the period of five years, ending in 2021.

Future Investment – $243.29 million to Produce New Vehicle in Sao Paulo

Toyota is also about to get an even stronger presence in Brazil as it will hire 300 new employees at the Sorocaba Plant to start the production of a new vehicle.

Partnership

And let’s not forget the ground-breaking partnership of Japan’s leading automakers that was revealed in August as Toyota and Suzuki Motor Co. (OTC: SZKMF) announced they will collaborate on developing autonomous car technology. This deal is cementing the bond that the two automakers kicked-off in 2016. They might seem like an odd couple as Suzuki is a everything but a big player, yet its strong presence in India is only one of the things that will greatly benefit Toyota. Although Suzuki admitted defeat on the world’s biggest playgrounds, China and the U.S., it cracked the code for emerging markets. And this is exactly where future global sales growth is expected to come from.

Inventing a car that will run forever?

According to Bloomberg, Toyota aims to go far further than electric by teaming up with Sharp Corporation (OTC:SHCAY) and Japanese governmental organization NEDO that encourages the development of innovative technologies. Considering that Toyota is a company that has even used the economic crisis and recession to only come out stronger, it’s not unlikely that it is set to out do the impossible by mixing the most efficient batteries with solar panels. The company’s strong financial performance and track record show that if anyone can do it, it’s Toyota Motor Co.

 

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Nike Exceeds Wall Street Expectations With Q1 Earnings for FY2020

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Direct-to-consumer sales and digital momentum strategies did the trick for Nike

When Nike (NYSE:NKE) released its better-than-expected first quarter of the fiscal 2020 results late Tuesday. Naturally shares jumped more than 5% to reach $91.80. The reported revenue increased 7.2% year comparing to last year, achieving $10.7 billion, greater than the expected $10.44 billion. Net income soared more than 28%, making adjusted earnings per share $0.86, also smashing expectations of $0.70 per share.

Nike managed to achieve a turnaround

The biggest contributor to total sales was Nike’s North American segment that increased 4% comparing to last year. But China sales also continue to grow and by double digit percentages: 22% to be exact, topping $1.68 billion. Overall, these are fantastic news for investors. Especially since the company’s rare earnings miss for the final quarter of the previous fiscal year. The company attributed this to increased marketing costs and a higher tax rate. But highly anticipated new product launches and solid results for continuing lines, along with efforts to draw new customers to the Nike SNKRS app, did their magic.

Digital momentum is key

Digital movement is transforming and amplifying everything Nike does and in Q1, Nike Digital grew 42% on a currency neutral basis. This growth is driven by enhanced digital services and the international expansion of its app ecosystem. Moreover, The Nike app and SNKRS app are now both live in over 20 countries, with more expansion coming throughout the year.

There are literally no weak spots for investors

Arguably, there are no weak spots for prudent investors to dig in as far as this quarter’s report is concerned. The company is literally firing on all cylinders. The company’s management attributes these results to “the depth and balance of the company’s complete offense, building on the strengths of its foundational business drivers and capitalizing on the untapped dimensions of its portfolio”. Management has also dismissed any concerns that US-China trade conflicts could harm its operations, disclosing no impact has been seen up to date.

Nike showed it can even handle the increased tariffs

Earlier this year Nike joined over 200 other footwear companies urging President Trump not to increase tariffs on footwear imported from China, calling the move “catastrophic for our consumers, our companies, and the American economy as a whole.” But while those tariffs are certainly catastrophic for small players, Nike seems more than capable of mitigating the consequences of this added expense.

Poor macroeconomic conditions are only masking Nike’s true power

The company made it clear that its figures would have been even stronger had it not been for macroeconomic challenges which are manifesting through tariffs and foreign-exchange rates. They implied that the weakening economic climate is essentially masking Nike’s true strength. And in addition to children, women are also a big opportunity for the company that Nike will continue exploiting. This is why Nike expects better-than-planned growth in its higher-margin NIKE Direct channels and international segments and consequently, its full-year gross margin. One thing is for sure: Nike has turned itself into so much more than a ‘sneaker-company’.

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Apple Will Be Making Its MacBook Pros in the US

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With a newly granted “federal product exclusion,” enabling it to import some Mac Pro parts without paying tariffs, Apple (NASDAQ: AAPL) will be able to save enough money to make US assembly worthwhile. The company announced on Monday that it will manufacture the new version of its Mac Pro desktop computer in Austin, Texas. It’s also a big political win for Apple, since President Trump has for years called on the company to make more products in the US. Tim Cook clearly made a compelling case during his meetings with President Trump. Apple described the decision to keep Mac Pro production in Austin as part of its “commitment to US economic growth.”

Macroeconomic climate is not favourable

The September figures around the world are simply awful. The uncertainty brought on by intensifying trade wars, the outlook for the car industry and Brexit are paralyzing investors, with September seeing some of the worst performance since the financial crisis in 2009, leading many to worry about whether yet another crisis is upon us. On a brighter note, Apple’s stock went up 0.2% after Bloomberg reported that ten of its 15 requests for an exemption from tariffs on imports from China had been approved.

New investments

Apple previously disclosed plans to spend $350 billion in the U.S. by 2023, a figure that includes new and existing investments. Its Apple TV+ is set to launch on November 1, with stars like Oprah Winfrey bringing her famed book club streaming show to the company’s subscription service. Among documentaries that will be released, there will even be a multi-series about mental health, featuring no other than Prince Harry himself. Apple’s subscription service will cost only $4.99 a month and will be available in 100 countries and regions at launch. Also, customers who buy a new Apple device will also get a free year of Apple TV+.

Competitors

Netflix (NASDAQ: NFLX) is still the leader when it comes to U.S. streaming, along with Amazon Prime (NASDAQ:AMZN), AT&T’s HBO (NYSE: T) and upcoming Disney+ (NYSE:DIS), it is certain that competition will be intense. Netflix’s stock has been dropping since July, which was the first time the number of subscribers fell. Moreover, Netflix’s stock price has now officially wiped out any gains it’s made over the year so far and both Disney and Apple have a shot at beating Netflix at its own game.

Apple is still facing impending import duties and innovation difficulties

Let’s not forget that the company still faces import duties scheduled for Dec. 15 that could affect nearly all of its major products including iPhones, iPads, MacBooks and Apple Watches. And more importantly, it is thought by many as facing an innovation problem so it heavily relies on customer loyalty that will continue driving its sales. We’ll just have to wait for November 1st launch of Apple TV+ to see the impact of Apple’s new streaming subscription service.

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