Forward P/E multiple ahead of long-term average Expectations for accelerated growth fairly reflected in share price Revenue should show growth in medium term given cloud offerings Competitive advantage to leverage existing commercial relationships Cloud momentum should offset secular decline in traditional PC revenues Cloud increases annuity income profile Cloud revenue will be supported by Azure Stack offering Negative margin impact of a bigger contribution from lower margin Azure revenue should be offset by: -
LinkedIn’s operating expenses Investments in cloud Investments in sales capacity Impact of legal benefit in previous period
Divisional Review
• Intelligent Cloud: • Revenue ↑ 14% ➢ Contribution of Azure ➢ Enterprise Services revenue up by 3%
• Operating margin ↑ to 33.8% (2017: 31.6%) • Operating expenditure contained ➢ Offset by gross margin pressures from growing contribution of cloud business
Company guidance • Guidance provided for Q3 2018: • •
Exchange rate impact will increase revenue by 2%, cost of sales by 1% and operating expenses by 1% Productivity and business processes revenue between $8.6bn and $8.8bn -
•
Intelligent Cloud revenue between $7.55bn and $7.75bn -
•
Increase of between 8% and 11% y/y Increase between 12% and 15% y/y
More Personal Computing revenue between $9.1 and 9.4bn -
Stable gross margins Operating margin slightly ahead of previous year, including LinkedIn More than a 1% increase in operating margin, excluding LinkedIn Effective rate of around 16% for 2018, slightly below statutory rate of 21% in 2019
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