‘Redmond delivers another cloud masterpiece’: 4 Wall Street analysts on Microsoft’s latest earnings report

Satya Nadella
Satya Nadella is the CEO of Microsoft

  • Microsoft stock is down on Wednesday despite a strong performance in its fiscal Q3 2021 earnings report.
  • High expectations for the overall business, and particularly cloud growth, could be dragging on shares.
  • Microsoft’s revenue hit $41.7 billion in the quarter, up 19% year-over-year, while EPS rose 45% to $2.03.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Microsoft reported its third-quarter earnings for fiscal 2021 on Tuesday after the closing bell.

Shares of the Redmond-based tech giant fell as much as 3.5% after the report, despite support from analysts.

In the quarter, Microsoft’s revenue hit $41.7 billion, up 19% over the prior year, while diluted earnings per share came in at $2.03, up 45% year-over-year.

Those figures weren’t enough to buoy the stock however as “expectations were just higher,” according to Jefferies analysts Brent Thill and Joseph Gallo, per The Street.

Some key figures from the report include Linkedin’s surging membership (the social media platform now has nearly 800 million members), a compound annual growth rate of 23% for commercial bookings, and 46% revenue growth in the Azure cloud business on a constant currency basis versus the same period a year ago.

Check out Insider’s report on five key takeaways from the quarterly earnings release to learn more.

Here’s what four top Wall Street analysts had to say about Microsoft’s earnings.

Goldman Sachs: “Gaining Share in Cloud as Global Enterprise Market Digitizes”

Goldman Sachs’ Kash Rangan said Microsoft’s fiscal third quarter validated his thesis about the company’s Azure cloud business.

The analyst added that Microsoft’s overall results were solid, noting the firm’s quarterly revenue growth of 19% was the fastest in 10 years.

Rangan also mentioned the impressive commercial bookings in the quarter. Microsoft managed a compound annual growth rate of 23% over the past two years in bookings.

“Longer term, we see the commercial cloud potentially doubling to $120-140 bn as MSFT continues to gain share of the cloud ecosystem, which is just ~25bps of global GDP and poised higher due to digital transformation,” Rangan wrote.

Goldman Sachs reiterated its “buy” rating and increased its price target from $315 to $340.

Wedbush: “Redmond delivers another cloud masterpiece”

Wedbush’s Dan Ives was pleased with the “massive cloud momentum” he saw in Microsoft’s earnings results on Tuesday.

Ives said Microsoft beat his estimates “across the board” and delivered the 50% Azure cloud growth figure he was expecting, beating the Street’s expectations by 400 bps.

Ives also highlighted what he believes was strong guidance and noted Microsoft is in the perfect position to take advantage of the expected growth in the cloud market. The analyst said 35% of workloads are hosted on the cloud today, but that figure will hit 55% by 2022.

“Despite worries around a moderation of growth across the cloud universe with WFH on its tail end, Nadella & Co. gave stronger than expected June guidance which highlights the underlying demand the company is seeing in the field with this cloud revolution underway, coupled by share gains against AWS,” Ives wrote in a note to clients after the earnings release.

Wedbush reiterated its “outperform” rating and increased its price target from $300 to $310.

JP Morgan: “Startup like bookings growth at the world’s largest software company”

JP Morgan’s Mark R Murphy said he was impressed with Microsoft’s “robust” earnings report and the “pace of innovation” at the tech giant in a note to clients after earnings.

Murphy highlighted the growth of bookings for Microsoft, but also noted he believes the company will face some margin pressure in fiscal year 2022.

“While the March quarter saw less benefit from in-period revenue upside, the key forward-looking bookings and backlog metrics which will drive future recurring revenue growth look quite robust and allow us to raise our forecast…another interesting element was security products, which showed the strongest momentum of all,” Murphy wrote.

“We believe Microsoft is signaling some pressure on margins in FY22,” Murphy added.

JP Morgan reiterated its “overweight” rating and raised its price target to $270 per share.

Piper Sandler: “We would be buyers on weakness”

Piper Sandler’s Brent Bracelin lauded Microsoft’s solid performance in the first quarter and said he would be a buyer based on four factors.

Those include: 1) the further acceleration in Azure contract commitments. 2) accelerating commercial bookings that spiked to a five-year high with a 38% year-over-year growth rate.

3) Microsoft’s best-in-class operating margin of 41%, and 4) the scarcity value on a more than $70 billion cloud asset still growing at 33% year-over-year.

Bracelin raised his fiscal year 2022 revenue estimates by $3 billion after the earnings release.

“MSFT shares were down slightly after hours on mixed Azure growth metrics that slipped to 46% y/y at constant currency (vs. 48% last quarter). We would be buyers on weakness,” Bracelin wrote.

Piper Sandler reiterated its “overweight” rating and increased its price target from $300 to $305.

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Microsoft stock will climb to $300 as the company gains cloud market share, Wedbush says

Microsoft employees

  • Microsoft stock will climb to $300 per share, according to analysts at Wedbush.
  • Analyst Daniel Ives said “recent field checks” have made Wedbush believe Azure is gaining market share in the cloud business.
  • Microsoft saw total revenue growth of 17% year-over-year and cloud revenue growth of 50% year-over-year in its most recent earnings release.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Microsoft stock will climb to $300 as the company continues to gain cloud market share Wedbush analysts said in a note to clients on Monday.

Wedbush analyst Daniel Ives lifted the firm’s price target for Microsoft to $300 from $285 after “recent field checks” in the industry have led him to believe Microsoft’s Azure cloud business is gaining market share from the competition.

Ives had already raised his price target for the tech giant to $285 from $275 after Microsoft outperformed in its latest earnings report, but recent updates have the analyst seeing even more upside ahead.

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Microsoft beat analyst revenue and earnings estimates for the quarter that ended in December on Jan 26, turning in record quarterly revenue of over $43 billion, up 17% year-over-year, and EPS of $2.03.

Analysts were most excited by the incredible growth of Microsoft’s Azure cloud business. The segment grew revenues by 50% year-over-year versus just 28% year-over-year growth at the company’s major competitor Amazon Web Services.

Now, analysts at Wedbush believe “the tide is shifting in the cloud arms race” and Microsoft is pulling ahead of Amazon’s AWS and others due to its broad installed base of customers.

“We believe Azure’s cloud momentum is still in its early days of playing out within the company’s massive installed base and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next few years,” Ives said.

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Wedbush also believes cloud adoption is only going to accelerate in 2021 even after a record year in 2020 due to the pandemic and stay-at-home trends.

“Based on our conversations with CIOs, CISOs, and IT product managers globally over the last month we believe cloud-driven architecture IT growth in 2021 could surpass that of 2020 as more enterprises rip the band-aid off on digital transformations,” Ives said.

The analysts continued, “we believe this disproportionally benefits the cloud stalwart out of Redmond, as Nadella & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery.”

Growing market share and prime conditions for Azure are probably music to the ears of executives at Microsoft. Especially after former CEO Steve Ballmer said he wished the company had got into cloud services sooner.

“Azure — I wish we probably started a year or so, two years earlier,” Ballmer said in a live stream on Clubhouse. “We started actually with platform as a service instead of infrastructure as a service. Probably we would do that a little bit differently. It cost us a little bit of time in the eventual battle, if you will, with AWS.”

Microsoft traded up slightly in premarket hours on Tuesday at $245.50 per share, implying a potential 22% price increase based on the Wedbush analysts’ predictions.

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