Mi­crosoft Has a Surg­ing Busi­ness With a $50 Bil­lion Sales Op­por­tu­nity

The Star (St. Lucia) - - BUSINESS - By Natalie Walters -- The Street

icrosoft (MSFT) re­ported strong fis­cal fourth quar­ter re­sults af­ter the close on Thurs­day, hand­ily beat­ing es­ti­mates on both the top and bot­tom lines.

The Red­mond, WA-based com­pany re­ported earn­ings of 98 cents per share, or 75 cents with­out in­clud­ing the value of tax ben­e­fits from un­wind­ing its mo­bile phone busi­ness, top­ping an­a­lysts' es­ti­mates of 71 cents per share. Rev­enue in­creased 13% year-over-year to $24.7 bil­lion, also beat­ing out Wall Street's es­ti­mates of $24.3 bil­lion.

Mi­crosoft has been shift­ing its fo­cus to­ward be­com­ing a cloud com­put­ing gi­ant that can com­pete with Ama­zon (AMZN) Web Ser­vices and Al­pha­bet Inc.'s (GOOGL) Google Cloud. The com­pany's In­tel­li­gent Cloud unit, which con­tains its Azure cloud plat­form and Win­dows Server prod­uct, saw sales jump 11% year-over-year to $7.4 bil­lion, vs. an­a­lysts es­ti­mates of $7.3 bil­lion.

Shares of Mi­crosoft were trad­ing down 0.6% to $73.79 early Fri­day af­ter­noon. Here's what Wall Street is say­ing about Mi­crosoft's lat­est big quar­ter.

Keith Bach­man, BMO Cap­i­tal Mar­kets (Out­per­form, $86 price tar­get)

"There was a lot to like in Mi­crosoft's (MSFT) Q4 re­sults, and cer­tainly re­in­forced our view that MSFT should be a core hold­ing for a va­ri­ety of in­vest­ment styles. . . One con­cern we have head­ing into about ev­ery quar­ter is the bal­ance of growth be­tween Azure and server prod­ucts."

Brent Bracelin, Pa­cific Crest (Over­weight, $82 price tar­get)

"Com­mer­cial cloud rev­enue in­creased 56% y/y to a $18.9B an­nu­al­ized run­rate, which ex­ceeded our fore­cast by ~$2B. The sheer size and ac­cel­er­at­ing pace of cloud growth in­creases our con­fi­dence in the bull-case sce­nario that Mi­crosoft Cloud can quickly scale to north of a $50B seg­ment by 2021."

Michael Tu­rits, Ray­mond James (Buy, $84 price tar­get)

"We re­it­er­ate our Strong Buy fol­low­ing a clean, across­the-board F4Q beat on strong cloud re­sults and com­mer­cial book­ings. . . We view the com­bi­na­tion of cloud and on premise strength as part of a broader de­mand for hy­brid on premise/off premise com­put­ing en­vi­ron­ments in­clud­ing VMW/ AWS, Or­a­cle Cloud Ma­chine, and in Mi­crosoft's case, the com­pany's strat­egy of In­tel­li­gent Cloud/In­tel­li­gent edge that in­cludes the newly launched Azure Stack."

Karl Keirstead, Deutsche Bank (Buy, $85 price tar­get)

"Against very high Street ex­pec­ta­tions, MSFT posted a mod­est over­all revs beat ($24.7b, +4% c/c ex-LNKD and slightly above our $24.6b es­ti­mate) and a mod­est ad­justed EPS beat (GAAP EPS of $0.75 ex an un­usual Phone tax ben­e­fit, above the $0.71 Street con­sen­sus) but the real up­side came in the al­limpor­tant Cloud busi­ness, with Azure growth ac­cel­er­at­ing to 97%, to­tal Cloud revs growth ramp­ing to 56% (and now 22% of the to­tal mix) and Cloud GMs up a full 10 points to 52%. In our view the stock fade dur­ing the earn­ings call is at­trib­ut­able to the 1QF18 (Septem­ber) quar­ter revs guide, which at $24.0b (+2%3% ex-LNKD) fell short of our $24.6b es­ti­mate."

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