Microsoft Results Could Take Valuation Above $1 Trillion

(Bloomberg) -- Microsoft Corp. analysts expect strong third-quarter results from the company on Wednesday as its cloud-computing division continues to see rapid growth.

The report could extend a rally that has lifted Microsoft shares more than 33 percent off a December low. Microsoft closed at a record on Tuesday and the company’s market capitalization is within 4 percent of $1 trillion. Shares were down 0.3 percent ahead of the results on Wednesday.

Microsoft Results Could Take Valuation Above $1 Trillion

Analysts are expecting broad strength in the quarter, but sales of the company’s Azure cloud-computing product are likely the most highly anticipated number in the report.

Wedbush analyst Daniel Ives forecast “a solid beat across the board on both the top and bottom line,” with cloud strength acting as “the fuel in the tank.”

According to estimates compiled by Bloomberg, Azure is expected grow more than 68 percent on a year-over-year basis. While this represents a slowdown from the 93 percent growth reported a year ago, the bigger scale underlines Microsoft’s central position in a key sub-sector of the information technology ecosystem, one dominated by Amazon Web Services only a few years ago.

The company’s Intelligent Cloud division accounted for 29.2 percent of Microsoft’s 2018 revenue, according to Bloomberg data, up from 25.3 percent in 2015. KeyBanc Capital Markets’ Brent Bracelin wrote that the cloud business had “structurally improved Microsoft’s growth trajectory,” creating the prospect of sustained double-digit annual growth. Goldman Sachs wrote that Azure’s positive momentum is “enabling the company to significantly outpace the overall market’s growth.”

Earnings are seen rising 4.9 percent in the quarter, while revenue gains 11.3 percent. That represents the slowest quarterly pace of year-over-year revenue growth since 2017, per Bloomberg data, but Mizuho Securities called it strong “for a company its size.”

Estimates

  • 3Q adjusted EPS est. $1 (range 96 cents-$1.04)
  • 3Q revenue est. $29.86 billion
    • Productivity and Business Processes revenue est. $10 billion (average of seven estimates)
    • Intelligent Cloud revenue est. $9.3 billion
    • More Personal Computing revenue est. $10.5 billion
  • 3Q gross margin est. 65 percent
  • 4Q adjusted EPS est. $1.18
  • 4Q revenue est. $32.62 billion
    • Productivity and Business Processes revenue est. $10.76 billion (average of five estimates)
    • Intelligent Cloud revenue est. $10.94 billion
    • More Personal Computing revenue est. $10.85 billion (average of four ests.)

Data

  • MSFT 34 buys, 2 holds, 2 sells
  • Average PT $131 (Upside of 4.2 percent from Tuesday’s close)
  • Implied 1-day share move following earnings: 3.8 percent
  • Shares rose after 8 of prior 12 earnings
  • Adjusted EPS beat estimates in 11 of past 12 quarters

Timing

  • Earnings expected April 24 4:09 p.m. ET
  • Call 5:30 p.m.

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