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Is Microsoft a Buy After Solid Q4 Earnings?


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Microsoft MSFT stock went through the roof after the company delivered earnings that topped the Zacks Consensus Estimate by 13.2%.

Revenue was strong across important product areas (Azure 64%, LinkedIn 25%, office 365 commercial 31% and Dynamics 365 45%). But Azue remained the strat performer and the business most investors are following closely.

Despite the mix issue within Azure, revenue growth was just somewhat lower than the 70%+ in the preceding three quarters. The flexibility of its offerings that include a mix of IaaS, PaaS and SaaS, as well as key partnerships with providers of other resources, places Microsoft in an enviable position. This, along with its strong position as a legacy provider (customers are already comfortable using its products) is leading to strong renewals and a growing number of customer wins.

Synergy Research's John Dinsdale, as reported by Techcrunch says that Microsoft has grown its cloud market share in each of the last few years (9% in 2016, 11% in 2017, 14% in 2018 and 16% in the first quarter of 2019). In spite of that, it remains the fastest-growing player in the IaaS space, although Amazon AMZN is a distant first and Alphabet's GOOGL Google is a little bit behind. Others like Oracle ORCL and IBM IBM are not in the same league and Alibaba BABA is strong mainly in China.

Unlikely areas like Surface and net search advertising revenue also increased a respective 14% and 9%. Windows commercial and office commercial were both up in the mid-teens percentage range.

Overall, it was a very strong performance minus gaming and related software, which were down. FX had a negative impact, so all the growth rates were a few points higher in real terms.

The cloud business is a capital intensive one, so there is usually some operating leverage . The expanding margins at Azure are likely linked to that.

It also promised double-digit revenue and operating margin growth in fiscal 2020.

Through Nadella's tenure during which Microsoft went from being a PC-centric business to a cloud-centric one, execution has been super . As the market has been focused on regulatory hassles at once red-hot tech stocks like mainly Facebook FB , but also Google, Apple AAPL and Amazon, Microsoft has simply been delivering results, quarter after quarter.  

And the results are there for all to see.

Now the question is, is this a good time to buy the stock? Especially considering that it has already appreciated after the strong results?

This is a tricky question as far as Microsoft is concerned. On the one hand, it is trading well above its median value having appreciated 36.0% year to date (which is not a good time to buy a stock usually, and especially considering Microsoft's size).

On the other hand, it's probably time we went back to re-evaluating our models because there doesn't seem to be an end in sight for Microsoft's cloud business and its productivity-centric cash cow continues to do the job. So this may be a trillion dollar company headed for new heights. The rest is just not making sense.

Microsoft shares carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.





This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: IBM , AMZN , BABA , FB , GOOGL



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