Microsoft's Azure Segment Steps Up To Deliver A Big Q1 Surprise

Goldman Sachs said strong momentum in Azure helped Microsoft Corporation MSFT to report its first-quarter results above Street view.

For the first quarter, Microsoft reported EPS of $0.76, which was $0.08 ahead of Street, and non-GAAP revenue of $22.3 billion (non-GAAP) also topped Street estimate of $ $21.7 billion. The company beat consensus revenue in each of its three segments, with the largest outperformance in the More Personal Computing segment.

“In line with our field checks, the positive surprise in the quarter was related to the company’s Azure segment, which saw yoy revenue growth accelerate to 116 percent from 102 percent as the company’s hybrid cloud momentum continues to build, resulting in an annualized revenue run rate of $3.5 billion,” analyst Heather Bellini wrote in a note.

Related Link: Microsoft Doing All The Right Things To Repeat Q1 Success In Q2

On the flip side, Microsoft guided its second quarter meaningfully lower than consensus estimates. To be specific, Bellini said for the tenth time in the past 13 quarters, the company guided out-quarter revenue and non-GAAP EPS below the Street at the midpoint, at $24.7 billion–$25.5 billion and $0.74–$0.79 versus consensus of $25.8 billion and $0.79, respectively. Goldman sees EPS of $0.71.

However, Bellini raised her FY17 non-GAAP revenue, which excludes the impact related to the Windows 10 deferral, estimate to $94.6 billion (prior $94.3 billion) versus consensus prior to the print of $93.9 billion. The analyst also increased her non-GAAP EPS view to $2.95 (prior $2.82) versus the Street at $2.90.

The analyst maintains her Neutral rating, but upped her 12-month price target to $60 from $57.

Shares of Microsoft closed Thursday’s trading at $57.25. In the pre-market hours Friday, they gained 5.97 percent to $60.67. At about $61 level, Microsoft trades at 21.4x and 21.1x GS’ CY16 and CY17 non-GAAP EPS estimates of $2.85 and $2.89 (prior $2.72 and $2.97).

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