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Though investor perceptions of Microsoft (MSFT) - Get Report had already changed a lot from the time that Satya Nadella became CEO in early 2014 to the end of 2018, this year still felt like a turning point for the post-Steve Ballmer version of the software giant.
Following a 50%-plus 2019 gain, Microsoft is worth about $1.2 trillion, up over 300% from the start of 2014 and running neck-and-neck with Apple (AAPL) - Get Report for the right to be called the world's most valuable company. A company that was once dismissed as a flat-footed, "legacy," tech giant that would never fully recover from its past smartphone and Internet missteps is posting double-digit sales growth -- and even higher commercial bookings growth -- at a time when its annual revenue run rate is north of $125 billion.
When talking about Microsoft's revival, plenty of observers have focused on the momentum seen by the Azure cloud services platform and the subscription-based Office 365 productivity suite. And indeed, there's a lot to like about how each business has performed.
Though having slowed a bit in recent quarters, Azure's revenue growth remains north of 50%, which in turn has spelled additional share gains for the unquestioned No. 2 player in the fast-growing public cloud services market. And total commercial revenue for Microsoft's Office franchise is growing at a double-digit clip, aided by strong Office 365 seat growth and the fact that Office 365 users are (on average) generating more revenue for Microsoft over the long-term than users of conventional Office licenses.
But Microsoft's recent top-line momentum isn't merely the result of Azure and Office 365's growth. Amid a general improvement in the company's product execution, a slew of other Microsoft businesses are also growing healthily.
These businesses include Microsoft's age-old Windows cash cow, which benefited in 2019 from both a business PC upgrade cycle and strong corporate uptake for Microsoft 365 subscriptions that cover Windows, Office 365, device management and security offerings. And they also include LinkedIn, which has seen revenue growth accelerate since Microsoft bought the professional social networking giant in late 2016 (in Microsoft's most recent quarter, LinkedIn grew 25%).
In addition, Microsoft's Surface hardware business is now doing more than $5 billion in annual sales, while its Dynamics business app unit is growing in the double-digit percentages thanks to strong growth for its Dynamics 365 cloud apps. And unlike many enterprise software peers, Microsoft is still seeing some growth for its traditional, license-based, server software business, thanks to healthy demand for Microsoft's Windows Server operating system and SQL Server database, as well as a flexible licensing model that lets customers easily deploy their licenses in cloud environments.
Meanwhile, Microsoft's EPS growth, which has been around 20% in recent quarters, has benefited not only from good revenue growth but also strong financial execution. In spite of large R&D and sales investments to support Azure and other cloud businesses, Microsoft's operating expense growth has consistently trailed its revenue growth. EPS has also benefited from large stock buybacks, totaling nearly $20 billion in Microsoft's fiscal 2019, which ended in June.
Those fiscal 2019 buybacks, it should be noted, happened at prices well below what Microsoft currently trades at. As Microsoft has turned in one quarter after another of good top-line and bottom-line growth, Wall Street certainly hasn't been shy about rewarding Satya Nadella's firm with richer multiples.