Microsoft (MSFT) will report its fourth-quarter 2020 tax earnings on Wednesday, and much of the focus will continue to be on the tech giant’s smart cloud business, which analysts say should see steady improvement as companies continue to invest money. in your cloud infrastructure.
This is what analysts expect from the report, compiled by Bloomberg, compared to Microsoft’s performance in the same fiscal quarter that ended on June 30 last year.
The history of Microsoft’s growth in recent years has been its smart cloud business, which includes its powerful Azure platform. In the fiscal fourth quarter of 2019, Microsoft reported Azure revenue growth of 64%, with the entire Intelligent Cloud business, which is also comprised of server products and business services, growing by 19%. Total revenue for the business reached $ 11.4 billion for the quarter.
Microsoft reported that the coronavirus pandemic had little impact on its fiscal performance in the third quarter of 2020, although it did note that towards the end of the quarter, which ended on March 31, “there was a slowdown in transactional licenses, particularly in small and medium-sized companies “. and a reduction in advertising spending on LinkedIn. “
It would make sense for Microsoft to see an increase in customer spending on its cloud platforms to better meet the needs of its employees as they work from home during the pandemic.
“In many cases, we see companies accelerate their digital transformation and cloud strategy with Microsoft in 6 to 12 months, as the prospects for a remote and heavy workforce in the immediate future are now looming with this backdrop. COVID-19 fund, “Wedbush analyst Dan Ives wrote in a research note.
Ives believes that Microsoft’s Azure will see 55% year-over-year growth in fiscal Q4 2020, and that spending on Microsoft’s platform and Office 365 will continue despite the economic consequences of the virus.
With a screen displaying some of the new Microsoft Azure services and updates in the background, Microsoft CEO Satya Nadella delivers the keynote address at Build, the company’s annual conference for software developers on Monday, May 6. 2019 in Seattle. (AP Photo / Elaine Thompson)
“We believe that between 85% and 90% of these cloud deployments have already been approved by CIOs, as we are seeing in the field, budgets are firmly established, with very low risk (relatively speaking) of any important expulsion for fourth June from our point of view, “he wrote in his note.
BMO Capital Markets analyst Keith Bachman offers a similar perspective for Microsoft through the coronavirus crisis.
“We envision a modest advantage for revolutions, EPS, and FCF relative to consensus estimates despite the lingering effects of the pandemic,” he wrote in a research note.
However, going forward, Bachman points to difficult margin comparisons between fiscal year 2020 and fiscal year 2021.
According to Bachman, the end of support for Microsoft’s Windows Server and Windows 7 helped fuel growth in the company’s Smart Cloud and More Personal Computing segments. However, that profit should fall in fiscal fourth quarter 2020, he said.
“As a result, we have reduced our consolidated operating margin assumption for fiscal year 2011 to 36.7% from 37.1%, and therefore we have reduced our EPS estimate to $ 6.23 from $ 6.29, or in line with the consensus,” Bachman wrote in his note.
Despite that, he says Microsoft is well positioned for the next five years, despite trading at 1.15 times the S&P 500 based on free cash flow valuation, and raised the BMO price target for the stock to $ 235. .
We will follow Microsoft’s announcement as it happens after the bell on Wednesday. Stay tuned.
