6 Microsoft Analysts Praise Q3 Earnings Beat, Azure Acceleration, Office 365 Momentum

Microsoft Corporation MSFT shares traded higher by 7.2% on Wednesday after the company reported an across-the-board earnings beat and demonstrated impressive sales momentum.

On Tuesday, Microsoft reported fiscal third-quarter adjusted EPS of $2.22 on revenue of $49.36 billion. Both numbers exceeded consensus analyst estimates of $2.19 and $49.05 billion, respectively. Revenue was up 18% from a year ago.

The company's Intelligent Cloud segment revenue, which includes Azure public cloud sales, was $19.05 billion, up 26% and ahead of consensus estimates of $18.9 billion. Productivity and Business Processes segment revenue, which includes Office 365 productivity software, was up 17% to $15.79 billion, beating analyst expectations of $15.75 billion.

Looking ahead, Microsoft guided for fiscal fourth-quarter revenue of between $52.4 billion and $53.2 billion.

Related Link: 'Modestly Better': 4 IBM Analysts React To Impressive Earnings Report

Resilient Cloud Model: Bank of America analyst Brad Sills said Microsoft's big numbers laid to rest concerns over difficult comps and disruptions from the war in Ukraine.

"Microsoft remains our top defensive pick, given our view that it is likely to sustain solid 18-20% FCF growth from enduring Azure/O365 cycles and steady datacenter/opex scale, through a challenging environment," Sills wrote.

Wells Fargo analyst Michael Turrin said Microsoft once again demonstrated the resilience of its platform.

"No change to our positive thesis—we view MSFT as well-entrenched within several significant end markets, Azure as a share gainer in the cloud IaaS wars, and MSFT shares as the cleanest way to play the continued shift of IT purchasing $s towards software and cloud," Turrin wrote.

Morgan Stanley analyst Keith Weiss said Microsoft's quarter was a perfect example of why he is bullish on software stocks.

"In a market where investors are worried about rising inflation, a cyclical downturn and strained global supply chains, Software would appear to be the safe haven, and Microsoft well illustrates why," Weiss wrote.

No Pandemic Hangover: Wedbush analyst Daniel Ives said the biggest takeaway from Microsoft's report was its robust cloud guidance.

"In a white knuckle market with the whole Street (regardless of what sector you cover, value/ growth, where you live in the world) watching Microsoft's earnings with a close eye, Nadella & Co. gave a robust cloud guidance 'for the ages' that will calm Street nerves this morning and was a bullish data point for MSFT and importantly the whole tech sector moving forward," Ives wrote.

Rosenblatt Securities analyst Blair Abernethy said Microsoft is poised to continue to maintain its growth momentum in coming quarters.

"With the continued strong Digital Transformation spending and shifting of workloads to the cloud, we expect Microsoft to grow revenues by 19% this year to $199.4b, and continue this growth in 2023 with ~15% y-o-y," Abernethy wrote.

Piper Sandler analyst Brent Bracelin says Microsoft's cloud business is showing no signs of the pandemic hangover some investors had feared.

"Bearish investor concerns that the best days of the cloud software industry are in the rearview mirror were proven wrong based on robust cloud results out of both Microsoft and Google Cloud," Bracelin wrote.

Ratings And Price Targets:

• Bank of America has a Buy rating and $365 target.
• Wells Fargo has an Overweight rating and $400 target.
• Morgan Stanley has an Overweight rating and $372 target.
• Wedbush has an Outperform rating and $340 target.
• Rosenblatt Securities has a Buy rating and $349 target.
• Piper Sandler has an Overweight rating and $352 target.