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

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

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, California-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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