You would be hard-pressed to find a hotter tech name than Microsoft (MSFT), which, for a while, earned the title as world’s largest publicly-traded company — a status it held to end 2018.
With the company set to report third quarter fiscal 2019 earnings results after the closing bell Wednesday, investors will be eager to learn the extent to which Microsoft’s growth momentum, which has been driven by popular products both for consumers and the enterprise, can continue. Owing to its its diversified business portfolio and ability to deliver timely growth and earnings beats, the tech giant has again endeared itself with both value and growth investors.
Shares of Microsoft have risen nearly 21% year to date, besting the 16% rise in the S&P 500 index, suggesting Wall Street is all in on the company’s long-term growth prospects. The company’s Commercial Cloud business is one reason UBS analyst Jennifer Swanson Lowe, who has a $125 price target on the stock, remains optimistic on Microsoft heading into the quarter. Lowe anticipated Commercial Cloud revenue growth of 39% on the back of 66% growth in Azure and 26% revenue growth in Office 365 Commercial. Will these projections pan out?
For the quarter that ended March, the Redmond, Wash.-based tech giant is expected to earn $1.00 per share on revenue of $29.84 billion. This compares to the year-ago quarter when earning were 95 cents per share on $26.82 billion in revenue. For the full year, ending June, earnings are projected to rise 14.4% year over year to $4.44 per share, while full-year revenue of $124.07 billion would mark a year-over-year increase of 12.3%.
There’s no question Microsoft’s growth narrative is closely tied to its Azure Cloud platform, which is second only to Amazon’s (AMZN) AWS. In the most recent quarter, the company generated $9 billion in revenue from its Commercial Cloud business, which includes the Azure public cloud, commercial subscriptions to the Office 365 productivity software, the Enterprise Mobility and Security products and commercial LinkedIn services.
Microsoft’s Intelligent Cloud business revenue grew 20% year over year to $9.4 billion, driven by 24% increase in Server products and cloud services revenue, namely a 76% revenue surge by Azure. On Wednesday investors will look to see if these growth trends can continue, while dispelling fears that the cloud boom has peaked and is on the verge of decline. This is because while the 76% revenue was impressive in number terms, the growth rate was flat from the first quarter.
For the just-ended quarter, the Intelligent Cloud business is expected to top $10 billion in revenue, while the More Personal Computing segment, the company’s top business segment, which encompasses gaming, search advertising, Surface and Windows, is expected to bring in about $12 billion. To the extent Microsoft can demonstrate its cloud growth can continue to accelerate into 2019, the shares — despite trading near all-time highs — could yet be one of the better bargains in tech.