All About The Cloud: Microsoft Hits All-Time High On The Back Of Strong Q4 Earnings

Microsoft Corporation MSFT shares traded higher by 3% on Friday morning after the company reported a fiscal fourth-quarter earnings beat led by strength in its cloud computing business.

Microsoft exceeded consensus analyst expectations for fourth-quarter earnings and revenue and also impressed with its first-quarter guidance as well. Azure revenue growth slowed from a quarter ago but was still an impressive 64% year-over-year.

Several Wall Street analysts have weighed in on Microsoft stock following the impressive quarter. Here’s a sampling of what they’ve had to say.

Booming Commercial Business

Morgan Stanley analyst Keith Weiss said Microsoft’s 25% growth in commercial bookings was particularly impressive.

“Providing core enterprise systems that drive a highly recurring revenue base and durable EPS growth – we see a solid case for MSFT to be valued as a new staple,” Weiss wrote in a note.

Stifel analyst Brad Reback said Microsoft appears to be positioning itself well to be a key long-term player in the digital transformation of the business world.

“Over the last several quarters it has become increasingly clear, based on large enterprise cloud deal activity and strong hybrid cloud growth, that as large F500 enterprises undertake their respective digital transformations Microsoft is effectively tapping into sizable Tier-1 enterprise workloads, a segment of the market that has historically been reserved for the likes of such legacy providers as IBM, ORCL and SAP,” Reback wrote.

Citi analyst Walter Pritchard said Microsoft’s quarter was impressive, but skeptics will ask whether or not this quarter was as good as it gets for the company.

“The concern will be with 2H CY19 will be the tail end of product cycle that is hard to repeat with 3-4 key end of support dates between 7/19 (SQL Server) and 1/20 (Windows Server, Office 2010, Windows 7) that may have pulled forward spend commitments and bookings that drive deceleration in 1H CY20,” Pritchard wrote.

Legacy Business Steady

In addition to strength in high-growth businesses like cloud, Canaccord Genuity analyst Richard Davis said Microsoft’s legacy businesses, such as on-premises Office software, Windows and legacy servers, are also outperforming expectations.

“The point is that we do not see some sort of cliff event in which Microsoft’s legacy business rolls over hard, and like the large majority of people who follow this company, we are in the consensus that the growth drivers will continue to deliver 20%+ growth for about half the business,” Davis wrote.

Raymond James analyst Michael Turits said cloud was strong, but on-premises numbers drove the majority of the earnings beat.

“We view Microsoft as having established a strong competitive advantage as one of the top-three hyperscale cloud vendors, but with distinct advantages over AWS and GOOG in having strong enterprise relationships and go-to market, natural advantage as an incumbent on-prem player in hybrid and edge deployments, and the ability to drive profitability based on ‘up the stack’ products ranging from Office 365 to collaboration, database, analytics, and AI,” Turits said.

All About The Cloud

Wedbush analyst Daniel Ives said Microsoft’s cloud business remains rocket fuel for the stock.

“Microsoft delivered robust FY4Q19 (June) results fueled by Azure-driven cloud growth, coupled with an impressive double-digit top line guide for FY20 that will be the 1-2 punch driving the bulls this morning,” Ives wrote.

KeyBanc analyst Brent Bracelin said Microsoft’s cloud business is on cloud nine.

“We are raising our estimates for this year and next on cloud momentum that could offset moderating MPC growth impacted by slowing consumer gaming trends and tough comparisons,” Bracelin wrote.

Ratings And Price Targets

• Morgan Stanley has an Overweight rating and $155 target.
• Stifel has a Buy rating and $155 target.
• Citi has a Neutral rating and $152 target.
• Canaccord Genuity has a Buy rating and $155 target.
• Wedbush has an Outperform rating and $160 target.
• Raymond James has a Strong Buy rating and $160 target.
• KeyBanc has an Overweight rating and $155 target.

The stock traded around $139.50 per share at time of publication and Microsoft's market cap ticker above the $1 trillion mark.

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