Reaction: Microsoft Gaming, Azure Growth Key To Success Moving Forward

Microsoft Corporation MSFT shares ticked lower on Thursday after the company reported 13% revenue growth in a difficult fiscal fourth quarter.

Microsoft reported fourth-quarter adjusted EPS of $1.46 on revenue of $38 billion. Both numbers topped consensus analyst estimates of $1.34 and $36.5 billion, respectively.

Microsoft’s Azure public cloud revenue growth slowed to 47% in the fourth quarter compared to 59% in Q3.

Looking ahead, Microsoft guided for $35.6 billion in first-quarter revenue, up 8% from a year ago but slightly below analyst expectations of $35.9 billion.

See Also: Microsoft Reports Q4 Earnings Beat, Cloud Revenue Up 17%

Azure Growth Slows: Bank of America analyst Kash Rangan said Microsoft’s long-term growth story remains on track, and the company has an opportunity to reaccelerate its revenue growth as it approaches easier comps in the second half of fiscal 2021.

“We view any weakness in the stock as a particularly attractive buying opportunity given potential rev reaccel for MSFT, a COVID beneficiary (Vaccine & Vitamin),” Rangan wrote in a note.

Mizuho analyst Gregg Moskowitz said investors shouldn’t let the Azure revenue growth deceleration spook them.

“Revenue doesn't tell the whole story as MSFT noted an increase in the number of larger, longer-term Azure contracts, which is evidenced by strong commercial bookings growth and commercial RPO growth,” Moskowitz wrote.

Wedbush analyst Daniel Ives said Microsoft continues to be his top cloud services stock pick.

“We have seen relatively strong cloud deal activity around Azure in the field and we believe these numbers justify the bullishness the Street has shared over the past few months on shares of MSFT, as this current remote work from home environment is further catalyzing more enterprises to make the strategic cloud shift with Microsoft the main beneficiary as evidenced by the solid results this evening,” Ives wrote

Gaming Business Shines: Morningstar analyst Dan Romanoff said the COVID-19 lockdown helped drive record gaming engagement for Microsoft.

“While SMB generally remains weak, Azure remains strong, and gaming revenues surged as the global lockdowns continued throughout the quarter,” Romanoff wrote.

Piper Sandler analyst Brent Bracelin said Microsoft’s commercial cloud bookings growth was impressive, but gaming stole the show.

“Gaming was the unexpected hero this quarter with $1B+ of upside contributing to 13% overall revenue growth and 16% y/y FCF growth, impressive considering this occurred during a global pandemic,” Barcelin wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and $250 target.
• Morningstar has a Hold rating and $228 target.
• Mizuho has a Buy rating and $225 target.
• Piper Sandler has an Overweight rating and $218 target.
• Wedbush has an Outperform rating and $260 target.