Microsoft (MSFT) is scheduled to report results of the fourth quarter of its fiscal year 2021 after the market close on July 27, with a conference call scheduled for 5:30 pm ET. What to watch for:
1. CLOUD: In its fiscal third quarter, Microsoft reported $15.1B in "Intelligent Cloud" segment revenue, up 23% year-over-year, or 20% in constant currency. Server products and cloud services revenue increased 26%, or 23% in constant currency, driven by Azure revenue growth of 50%, or 46% in constant currency.
At the time of its report, CEO Satya Nadella said: "Over a year into the pandemic, digital adoption curves aren't slowing down. They're accelerating, and it's just the beginning. We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform." CFO Amy Hood added that the "Microsoft Cloud, with its end-to-end solutions, continues to provide compelling value to our customers generating $17.7 billion in commercial cloud revenue, up 33% year over year."
In a recently published earnings preview, Jefferies analyst Brent Thill raised his price target for Microsoft to $335 while maintaining a Buy rating on the shares. Microsoft's been a significant outperformer year-to-date, up 30%, setting the bar "slightly higher" for shares going into the Q4 print, the analyst said. Overall, Thill believes Q4 expectations are achievable, supported by Microsoft's diverse portfolio including Azure and Teams driving upselling.
On July 22, Citi analyst Tyler Radke raised the firm's price target on Microsoft to $378 from $310 and kept a Buy rating on the shares. The analyst, who increased estimates and maintains a positive view into Microsoft's fiscal Q4 results, expects to see a "strong finish" to Microsoft's fiscal year due to recovering IT budgets, an uptick in expected reseller growth, signs of reacceleration in consumption models and slightly higher PC numbers versus three months ago.
The same day, BofA analyst Brad Sills raised the firm's price target on Microsoft to $325 from $305 and reiterated a Buy rating on the shares. The analyst sees potential 2%-3% upside to the fiscal Q4 revenue estimate of $44.1B from Azure and Office 365 strength on easier comps. Sills sees continued 50% Azure growth as likely amid the sustained migration of workloads.
2. NEW WINDOWS: On June 24, Microsoft unveiled Windows 11, which is "designed to bring you closer to what you love." "We've simplified the design and user experience to empower your productivity and inspire your creativity," the company said in a blog post. "With Windows 11, we're excited to introduce Chat from Microsoft Teams integrated in the taskbar. Now you can instantly connect through text, chat, voice or video with all of your personal contacts, anywhere, no matter the platform or device they're on, across Windows, Android or iOS," the post continued. "We're also pumped to announce that we are bringing Android apps to Windows for the first time. Starting later this year, people will be able to discover Android apps in the Microsoft Store and download them through the Amazon Appstore - imagine recording and posting a video from TikTok or using Khan Academy Kids for virtual learning right from your PC," the company said.
On July 14, Microsoft announced Windows 365, a cloud service that introduces a new way to experience Windows 10 or Windows 11 - when it becomes available - to businesses of all sizes. According to the company, "Windows 365 takes the operating system to the Microsoft cloud, streaming the full Windows experience - apps, data and settings - to personal or corporate devices. Secure by design and built with the principles of Zero Trust, Windows 365 secures and stores information in the cloud, not on the device, providing a secure, productive experience for workers from interns and contractors to software developers and industrial designers. Windows 365 also creates a new hybrid personal computing category called Cloud PC, which uses both the power of the cloud and the capabilities of the device to provide a full, personalized Windows experience." Windows 365 will be generally available to businesses of all sizes starting on Aug. 2, 2021.
After Microsoft officially announced Windows 365, Jefferies' Thill said the company's "cloud PC" product should initially resonate well with small and midsize businesses and could be Microsoft's "next killer platform." Thill believes Microsoft is "set up to flourish in a WFA environment" and sees plenty of growth drivers for the company, he added at that time.
Meanwhile, Oppenheimer analyst Timothy Horan noted that Microsoft finally revealed "Cloud PC," which he had ruminated on for a year. The benefit to enterprises is simplicity, security, and reduced opex/capex, Horan contended. The analyst believes business communications is converging with enterprise IT over the Cloud creating a winner-take-all, new virtual workplace, which he predicts Microsoft will dominate. Cloud PC, as well as the prior month's introduction of Windows 11 and its integration of Teams, establishes it as the de facto standard for the virtual workplace, he added. Horan has an Outperform rating on Microsoft shares.
3. M&A: On July 12, Microsoft announced that it entered into a definitive agreement to acquire RiskIQ, a threat intelligence and attack surface manager. "RiskIQ helps customers discover and assess the security of their entire enterprise attack surface-in the Microsoft cloud, AWS, other clouds, on-premises, and from their supply chain. With more than a decade of experience scanning and analyzing the internet, RiskIQ can help enterprises identify and remediate vulnerable assets before an attacker can capitalize on them," Microsoft said in a statement.
On July 21, Joy Chik - Corporate Vice President, Microsoft Identity - stated in a blog post: "At Microsoft, we are committed to supporting organizations in their digital transformation and helping them to deliver secure and seamless experiences... Today, Microsoft is taking a significant step toward this goal with the acquisition of CloudKnox Security, a leader in Cloud Infrastructure Entitlement Management. CloudKnox offers complete visibility into privileged access. It helps organizations right-size permissions and consistently enforce least-privilege principles to reduce risk, and it employs continuous analytics to help prevent security breaches and ensure compliance. This strengthens our comprehensive approach to cloud security... Our acquisition of CloudKnox, like our recent acquisition announcements on RiskIQ and ReFirm Labs, shows our focus and execution in acquiring, integrating and expanding the strongest defenses for our customers - from chip to cloud - backed by more than 3,500 defenders at Microsoft and the more than 8 trillion security signals we process every day."
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