Microsoft results show tech giant is 'living up to the legend,' Citi says
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Microsoft's (NASDAQ:MSFT)
second-quarter earnings and third-quarter guidance, led by strength in Azure, shows that the tech-giant is "living up to the legend" and helped reassure investors who were concerned about a slowdown, Citi said in a note to investors.
Analyst Tyler Radke kept his buy rating, but raised his price target to $386, from $376, noted that Microsoft's outlook for faster Azure revenue growth next month calmed investor nerves. He added that Microsoft is Citi's top megacap pick as its double digit growth formula is "distinguished and defensive."
"We believe MSFT can continue to capture increased consumer/enterprise spend with strong pricing power in core Office/Windows franchises and as its enviable list of enterprise customers accelerate cloud migrations," Radke wrote in a note to investors.
Microsoft (MSFT) shares are up more than 3% to $298.50 in pre-market trading.
"Importantly, the strong commercial bookings performance in Q2 and strength in consumption are expected to drive an acceleration in Azure growth from Q2 levels (47-48% y/y cc from 46% y/y), which helped alleviate investor concerns around slowing growth," Radke explained.
Redmond, Washington-based Microsoft (MSFT) said it earned $2.48 a share on $51.7 billion in revenue, up 20% year-over-year. The consensus from Wall Street analysts called for Microsoft to earn $2.32 per share on $50.78 billion in revenue, up 17.9% year-over-year.
Azure, which has been a focal point for investors, saw revenue rise 46% year-over-year, though Microsoft did not break it down in dollar terms. Microsoft revenue from Productivity and Business Processes was $15.9 billion, up 19% year-over-year, aided by Office 365, which now has 56.4 million subscribers. Revenue from Intelligent Cloud was $18.3 billion, up 26% year-over-year, while More Personal Computing, which includes Windows, rose 15% year-over-year to $17.5 billion.
For the third-quarter, Microsoft Chief Financial Officer Amy Hood said the company expects to generate revenue between $48.5 billion and $49.3 billion, with operating margins rising slightly.
In addition to Microsoft's strength, Radke added that the strong bookings growth for Azure provides a "positive read-thru" for a number of large enterprise peers, including ServiceNow (NYSE:NOW), Teradata (NYSE:TDC) and Nice (NASDAQ:NICE). The strong Q3 guidance, which implies an acceleration for Azure, also bodes well for other cloud-based usage models, including Datadog (NASDAQ:DDOG), MongoDB (NASDAQ:MDB), Snowflake (NYSE:SNOW) and Elastic (NYSE:ESTC), among others.
On Tuesday, it was reported that Activision (NASDAQ:ATVI)
would keep the next three "Call of Duty" games on Sony's (NYSE:SONY) PlayStation console, despite the pending Microsoft purchase.