Microsoft Analyst Lowers Revenue Estimates Ahead Of Q3 Report, Remains Bullish On Software 'Pillar'

Ahead of Microsoft Corporation's MSFT third-quarter results due Wednesday, one analyst at Jefferies discussed the software giant's near-term uncertainties and long-term prospects.

The Microsoft Analyst

Brent Thill maintained a Buy rating on Microsoft and increased the price target from $175 to $200. 

The Microsoft Thesis

Microsoft's third-quarter results and fourth-quarter guidance could come in mixed as a "hat trick of amazing products" — Azure, Xbox and Teams—– for a coronavirus world alleviate potential weakness in Windows OEM and on-prem license weakness, Thill said in a Monday note. (See his track record here.)

Following Microsoft's warning in late February of a miss for its More Personal Computing segment, Jefferies lowered its third-quarter revenue estimate for the quarter to $33.8 billion.

Factoring in conservative guidance and tough quarterly fundamentals, Thill lowered the fourth-quarter revenue estimate to $36.3 billion, $350 million lower than the Street.

Jefferies expects non-GAAP EPS of $1.37 for the third quarter and $1.36 for the fourth quarter.

Jefferies raised its year-over-year growth estimate for Azure, which accounted for 13% of the total revenues in the fiscal second quarter, from 55% to 57%, as Thill said it is likely a major beneficiary of the increased shift to cloud computing in a work-from-home environment.

Increased time at home and a lack of other entertainment options could help Xbox to outperform, the analyst said.

Jefferies also sees Teams as another beneficiary, which has seen a spike in demand and has attracted 44 million daily users overall compared to the 20 million the company reported in November.

Microsoft is "one of the best pillars in software long term," Thill said. 

MSFT Price Action

At last check, Microsoft shares were slipping 2.14% to $170.32.

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