There is no question that tech stocks, particularly software names, have powered the market higher since the March 2020 bottom. The shift to remote work has forced corporations to increase spending not only on cloud computing, but also on ways accelerate their digital transformation to stay competitive.
Few companies have benefited from this shift more than Microsoft (MSFT), which has seen its shares surge more than 6% over the past week to near all-time highs. The software giant is set to report second quarter fiscal 2021 earnings after the closing bell Tuesday. Work and learn-from-home trends continue to power increased demands for Microsoft services, evidenced by the strong Q4 demands in its Productivity and Business and Intelligent Cloud segments.
But the strength of Microsoft’s Commercial Cloud business has been, and will continue to be, the catalyst for the stock’s strong performance over the past year. Last quarter Azure revenue was up 48% year over year — a slight deceleration from the 50% growth in Q4. Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, driven by Azure's momentum. On Tuesday investors will want some evidence that Azure and Microsoft’s Teams (a Zoom (ZM) competitor) can continue to propel the company higher.
For the quarter that ended December, the Redmond, Wash.-based tech giant is expected to earn $1.64 per share on revenue of $40.18 billion. This compares to the year-ago quarter when earning were $1.51 per share on $36.91 billion in revenue. For the full year, ending June 2021, earnings are projected to rise 17% year over year to $6.76 per share, while full-year revenue of $158.29 billion would mark a year-over-year increase of 10.7%.
Microsoft shares fell as much as 5% last quarter even after the company reported better-than-expected Q1 results that topped analysts’ expectations. Q1 adjusted EPS of $1.82 easily beat consensus estimates by 27 cents. Likewise, Q1 revenue of $37.15 billion which grew 12.4% year over year, topped the $35.8 billion analysts were looking for. Notably, the Intelligent Cloud business segment, which includes the Azure, rose 20% year over year, topping estimates and accelerating from the 17% growth Q4.
As noted, Azure revenue rose 48% year over year, compared to 50% rise in Q4 and 61% in FQ3. Nevertheless, the Azure performance was enough to drive server products and cloud services gain 22% on the year. Elsewhere, thanks to 9% growth of Office Commercial products and cloud revenue, Microsoft posted a rise in Productivity and Business revenue. "Demand for our cloud offerings drove a strong start to the fiscal year with our commercial cloud revenue generating $15.2 billion, up 31% year over year,” said CFO Amy Hood. “We continue to invest against the significant opportunity ahead of us to drive long-term growth.”
As it stands, Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, driven by Azure's momentum. But for the stock to keep powering higher Microsoft on Tuesday not only must extend its strong execution track record, it must also provide strong guidance for the next quarter and fiscal year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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