Microsoft (MSFT) is scheduled to report results of the first quarter of its fiscal year 2020 after the market close on October 23, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. CLOUD: In the fourth quarter, Microsoft reported $11.4B in "Intelligent Cloud" segment revenue, up 19% year-over-year, or 21% in constant currency. Server products and cloud services revenue increased 22%, or 24% in constant currency, driven by Azure revenue growth of 64%, or 68% in constant currency.
2. NEW PRODUCTS: On October 2, Microsoft announced what it called its "broadest Surface lineup ever - with five new products coming this holiday and two new dual-screen devices, Surface Neo and Surface Duo, coming in Holiday 2020." The company added that it is "bringing more performance and new designs to our most popular product lines with the new Surface Laptop 3, Surface Pro 7 and Surface Pro X."
3. ONLY BEAR GIVES UP COVERAGE: Among 37 analysts covering Microsoft, 95% have Buy or equivalent ratings, only two have Hold or equivalent ratings and zero have a Sell or equivalent rating, according to Bloomberg data. There had been one, but that changed on October 7 when Jefferies analyst Brent Thill assumed coverage of the software industry and upgraded Microsoft to Buy. Jefferies' previous analyst covering the stock, John DiFucci, had a long-standing Underperform rating on the stock. Thill sees Microsoft having a large diversified business with "excellent visibility that has a clear line of sight" into double-digit revenue growth for the foreseeable future, he stated as he set a $160 price target on the shares. He also cited multiple growth drivers like Azure, Office, and LinkedIn; favorable secular trends; profitability and free cash flow; and the company’s continued return of capital to shareholders.
4. JEDI CONTRACT: On August 1, Elissa Smith, a spokeswoman for the U.S. Department of Defense, issued a statement on the Pentagon putting the $10B JEDI cloud contract on hold while Secretary of Defense Mark Esper reviewed it. According to CNBC, the statement read: "Secretary Esper is committed to ensuring our warfighters have the best capabilities, including Artificial Intelligence, to remain the most lethal force in the world, while safeguarding taxpayer dollars. Keeping his promise to Members of Congress and the American public, Secretary Esper is looking at the Joint Enterprise Defense Infrastructure (JEDI) program. No decision will be made on the program until he has completed his examination."
President Donald Trump had endorsed criticism that Amazon (AMZN) is being given an unfair advantage for the contract valued at as much as $10B, Bloomberg's Anthony Capaccio and Naomi Nix reported at that time. Microsoft is the number two contender, while Oracle (ORCL) was eliminated from the competition earlier this year, their report noted.
On October 22, Chief Pentagon Spokesperson Jonathan Rath Hoffman issued the following statement: "As you all know, soon after becoming Secretary of Defense in July, Secretary Esper initiated a review of the Department's cloud computing plans and to the JEDI procurement program. As part of this review process he attended informational briefings to ensure he had a full understanding of the JEDI program and the universe of options available to DoD to meet its cloud computing needs. Although not legally required to, he has removed himself from participating in any decision making following the information meetings, due to his adult son's employment with one of the original contract applicants. Out of an abundance of caution to avoid any concerns regarding his impartiality, Secretary Esper has delegated decision making concerning the JEDI Cloud program to Deputy Secretary Norquist. The JEDI procurement will continue to move to selection through the normal acquisition process run by career acquisition professionals."
Microsoft
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