the report

After the closing bell last Thursday, MSFT reported earnings for its third fiscal quarter (its fiscal year ends in June).  The company had revenue of $21.7 billion for the March period and earnings per share of $.62.  This compares with Wall Street consensus estimates of $.51/share.

Cloud-related businesses were very strong, Windows-related less weak than expected–although the coming launch of Windows 10 at mid-year is already keeping a lid on Windows performance, as potential buyers wait for the newer version.

MSFT shares opened Friday trading up by 5%+ from the Thursday close and tacked on another 5% or so be 4pm.

Yes, the quarter was good.  And management made it clear, even through its brand of jargon-laden corporate speak, that its move to the cloud can enable a radical expansion of its business, not simply a shifting of revenues from one pocket to another.

the Amazon influence

However, I think the unusually sharp rise in MSFT shares on Friday is more due to Amazon (AMZN) than to MSFT.

AMZN also reported after the close on Thursday.  For the first time, it broke out its Amazon Web Services as a separate business line.  Most Wall Street observers had apparently assumed that AWS, a cloud industry leader, made little or no profit for the company.  I’m not sure why they thought this.  The only thing I can come up with is that AMZN as a whole lost money for the first eight years of its existence as a public company–and analysts argued that AWS would be déjà vu all over again.

Turns out, though, that despite AMZN’s notoriously conservative accounting, the line of business breakout shows AWS making a ton of money.  AMZN shares opened Friday up by 12.5% from Thursday’s close, and drifted higher during the day.

It seems to me that MSFT rose mostly in sympathy with AMZN.

what to do about the stock

The move to the cloud has a bunch of pluses for MSFT:

–the company’s services can be used on many platforms–servers, PCs, smartphones, tablets

–it is launching new multimedia, multi-platform services

–it can provide truncated versions of sophisticated corporate services to small businesses and individuals

–the rental model for services will generate higher income than sales, and

–MSFT can reshape its image from being a PC-centric company of the past to being a cloud-based company of the future.

My sense is that Wall Street still views MSFT through PC glasses.  Change in perception represents substantial upside for the stock, in my view.  Still, the outsized upward move in the stock has got to tempt holders–myself included–to take some profits now, with the idea of replacing the stock being sold at lower prices.