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Microsoft shares have climbed to new highs during the Covid-19 pandemic, as companies accelerate their adoption of cloud-based software. This has given a boost to both Azure, the company’s public cloud service, and cloud-based apps like Office 365 and Teams.
How much Covid has boosted the business will be a bit clearer when Microsoft (ticker: MSFT) reports financial results for its fiscal fourth quarter on Wednesday, July 22. Street consensus estimates are for revenue of $ 36.4 billion and earnings of $ 1.38 per share.
Microsoft provides guidance on revenue by line of business. For the June quarter, Microsoft projected productivity and business process revenue of $ 11.65 billion to $ 11.95 billion; Smart cloud revenue from $ 12.9 billion to $ 13.15 billion, and more personal computing revenue from $ 11.3 billion to $ 11.7 billion. (The street consensus numbers for the three groups are $ 11.9 billion, $ 13.0 billion, and $ 11.3 billion, respectively).
The question for Microsoft will be about how effectively the move to the cloud offsets the headwinds of a software economy. Some of the company’s clients, such as those in the travel, retail and restaurant sectors, are no doubt cutting back on IT spending. How that was balanced in the June quarter, and how the company addresses the prospects for the fiscal year of June 2021, will be the determining factor in the street’s response to the results. A wild card for the new year: the answer to the launch later this year of a new version of the Xbox game console.
“The economic headwinds amid a pandemic and the aftershocks that are forced to put pressure on companies’ IT budgets have created some short-term challenges,” Piper Sander analyst Brent Bracelin wrote in a research note prior to trimester. “That said, the transition from the cloud model that could progressively benefit from remote work queue winds should help Microsoft safely navigate rough waters.”
Bracelin points out that cloud revenue should exceed 40% of sales this quarter, up from 16% three years ago. Bracelin lowered its estimate of earnings per share for the quarter to $ 1.31, to reflect a drag of five cents a share on the closure of the company’s retail stores. Bracelin maintains his overweight rating and his price target of $ 192.
Morgan Stanley‘s
Keith Weiss maintains an overweight rating and a target of $ 230 in Microsoft stock. He thinks that “short-term durability of demand” should boost estimates in the June quarter. He expects the conservative initial guidance for fiscal year 2021 to be conservative, but adds that “considering the multiple drivers of growth and the track record of managing consistent execution and superior performance, we continue to see a path to double-digit revenue growth. in fiscal year 2021. “
Microsoft shares have recovered about 30% for the year to date. The S&P 500 and Dow Jones Industrial Average decreased 0.2% and 6.5%, respectively.
Write to Eric J. Savitz at [email protected]
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