shares were inching higher on Wednesday, lifted by a flurry of bullish Wall Street research notes about the company’s impressive beat-and-raise earnings report.
The company saw across-the-board strength for its fiscal fourth quarter, ended June 30, and gave upbeat commentary on Azure, cloud-based applications, Xbox, LinkedIn, Office, and even advertising.
Overall, Microsoft (ticker: MSFT) posted revenue of $46.2 billion, up 21% from a year ago, and nearly $2 billion above Wall Street estimates. Profits were $2.17 a share, ahead of the consensus at $1.90 a share.
In midday trading Wednesday, the stock was up 0.2%, to $287.13. But in late trading Tuesday—the company posted results after the closing bell—the stock ticked lower before CFO Amy Hood provided better-than-expected guidance for the September quarter.
If Microsoft hits the top of the guidance range Hood provided for each business segment, revenue would be $44.2 billion, topping the Street consensus at $42.5 billion, with particular strength in its cloud-based software businesses.
Microsoft also projected double-digit growth in revenue and operating income for the June 2022 fiscal year.
In the solid report, a few data points stood out.
- Azure revenue was up 51%, and “commercial cloud” revenue, which bundles Azure and the cloud-based version of Office and other applications, was up 36%.
- LinkedIn is now at a $10 billion revenue run-rate, or about twice the size of Twitter.
- Xbox hardware revenues were up 172%.
- The company said it now has nearly 250 million monthly average users for Teams—the first time it has provided that data point.
The Street seems especially jazzed about Azure, which beat Street growth estimates by 9 percentage points on a constant-currency basis. Even better, Microsoft said September-quarter Azure growth would be at a comparable rate to the June quarter on a constant currency basis—45%.
J.P. Morgan analyst Mark Murphy pointed out that the comment implies growth would be about 7 percentage points above previous Street expectations. Murphy kept his Overweight rating on the stock and boosted his target price to $310, from $300.
Many analysts raised their target prices on Wednesday. But no one was more bullish than Citi’s Tyler Radke, who repeated his Buy rating and lifted his target to a Street-high $411, from $378, which implied a potential gain of more than 40%.
“Into a high bar, Microsoft delivered a strong performance in Q4, with 4% revenue upside and even stronger profitability,” Radke wrote. He added that the fiscal first quarter outlook implies Azure is accelerating, which he sees as “the biggest positive takeaway” from the June quarter.
Morgan Stanley analyst Keith Weiss also thinks the stock has more room to run. “Solid positioning for core secular growth trends, strong execution against those opportunities and a growing base of recurring revenues powered a significant Q4 beat,” he wrote, adding that the results “bolster our conviction in the durability of high-teens EPS growth at Microsoft.” He added that the stock offers “a rare secular growth story in software with room for multiple expansion.”
Weiss repeated his Overweight rating and lifted his target price to $305, from $300.
At RBC Capital, analyst Rishi Jaluria assumed coverage of the stock, with an Outperform rating and a boost to the target price—to $360, from $290. “We like Microsoft for its market leadership position in many critical areas of software, strong momentum with Azure and Teams, and multiple growth drivers,” Jaluria wrote.
Write to Eric J. Savitz at [email protected]