4 Microsoft Analysts Break Down Software Giant's Q3 Earnings, Cloud Strength, Long-Term Outlook

Microsoft Corporation MSFT reported better-than-expect results for the fiscal-year third quarter and issued in-line guidance for the fourth quarter.

The Microsoft Analysts: BofA Securities analyst Brad Sills reiterated a Buy rating for Microsoft shares and increased the price target from $300 to $305.

Credit Suisse analyst Stephen Ju maintained an Outperform rating and lifted the price target from $265 to $300.

Mizuho Securities analyst Gregg Moskowitz reiterated a Buy rating and upped the price target from $270 to $285.

Jefferies analyst Brent Thill maintained a Buy rating and $300 price target.

BofA Breaks Down Microsoft's Q3: Microsoft's better-than-expected quarterly results were driven by Azure momentum and Windows upside orchestrated by better PC shipments, Sills said in a note.

The Productivity and Business Process segment saw 15% year-over-year revenue growth to $13.4 billion, the analyst said.

The growth came from LinkedIn, which benefited from strong advertising demand, and Business Office upside, he said. 

Intelligent Cloud revenues climbed 23% to $15.1 billion thanks to 50% Azure growth, Sills said.

The More Personal Computing segment, according to the analyst, benefited from better PC shipments and strong X/S console demand.

The revenue upside and scale across cost of goods sold and opex led to outperformance on the bottom line on a non-GAAP basis, Sills said.

"Another solid quarter across Microsoft's major lines of business underscores powerful DX tailwinds and solid execution in place across key components of the Microsoft cloud." 

Azure consumption ramp and solid long-term deal bookings across the key financials, retail and health care verticals drove sustained 45%-plus constant currency growth, signaling global organizations are increasingly relying on the cloud platform for more mission critical workloads, according to BofA. 

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3 Reasons Why Credit Suisse Is Positive On Microsoft: Credit Suisse maintained its bullish bias toward Microsoft, as the company, with its broad portfolio of on-premise server products, public cloud and SaaS applications, is one of the likely hybrid cloud winners, Ju said in a note. 

Rising Azure profitability will support upside, the analyst said. Additionally, the continued success of Microsoft's O365 is positive for the company, he said. 

Why Mizuho Says Microsoft Poised For More Cloud Success: The quarter's revenue upside of about 2% was less than the typical 4% beat, and more importantly, forex added one more point than expected as well, Moskowitz said.

Despite a somewhat lackluster beat, commercial bookings grew a better-than-expected 38% year-over-year in constant currency thanks to a much easier comparison due to COVID-19 and an increase in the number of larger and long-term Azure contracts, the analyst said.

Microsoft Team daily average users are now over 145 million, up from 115 million, as of September 2020.

"While many investors were hoping for more total revenue upside in F3Q, we remain confident that MSFT is positioning for even greater success in cloud over the medium-term and beyond," he said.

Jefferies Sees Sustainable Revenue Growth Ahead: The magnitude of Microsoft's revenue beat was tied for the smallest beat in five years other than the second-quarter miss, Thill said.

This is not representative of the underlying strength of the business when looking at the acceleration in commercial bookings and revenue performance obligation growth, ultimately supporting sustainable double-digit revenue growth, the analyst said. 

MSFT Price Action: At last check, Microsoft shares were down 2.69% at $254.91. 

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