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Microsoft delivers on cloud performance in 'blowout' quarter, Wedbush says

Will Daniel   

Microsoft delivers on cloud performance in 'blowout' quarter, Wedbush says
  • Microsoft shares are rising after the company notched a 'blowout' quarter, Wedbush analysts say.
  • Revenues grew 17% year-over-year as the company's cloud computing services outperformed.
  • Wedbush has raised its price target on Microsoft to $285 per share from $270.

Shares of $4 jumped in premarket trading on Tuesday after the company announced a 'blowout' quarter, according to Wedbush analysts.

The Redmond, Washington-based big tech giant continued to benefit from the work-at-home environment in its most earnings release. Revenues shot up 17% year-over-year to $43.1 billion, beating analyst estimates by nearly $3 billion.

Non-GAAP EPS was also a standout, reaching $2.03 for the quarter, well above the Street's $1.64 estimate.

Wedbush analyst Daniel Ives called the quarter a "Mahomes-like performance," referencing star NFL quarterback Patrick Mahomes of the Kansas City Chiefs, and highlighted the standout results from Microsoft's cloud computing services unit.

Intelligent Cloud revenue grew 23% in the quarter to $14.6 billion, beating both Street estimates and Microsoft's own forecasts significantly.

Sales of Azure, the company's flagship cloud computing product, also climbed 50% in the quarter.

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"This cloud shift and WFH dynamic looks here to stay, and the company stands to be a major beneficiary of this trend on its flagship Azure/Office 365 franchise over the coming years," said Wedbush analyst Daniel Ives.

Ives continued, "with 35% of workloads in the cloud today poised to hit 55% by 2022, we believe this WFH shift has accelerated the cloud trend by roughly a year as more CIOs are now being forced to face the new normal/reality for their respective organizations looking ahead."

Wedbush has been bullish on Microsoft for some time. The firm $4 for the big tech powerhouse to $270 per share going into earnings.

With cloud computing set to continue outperforming, Wedbush believes Microsoft is in a good position for the future. However, some investors fear a slowdown once the vaccine rolls out and workers return to the office.

Ives agreed, saying, "with a vaccine being deployed globally, the WFH shift will clearly moderate as many return to the office during the course of 2021."

Still, the analyst doesn't expect the return to work to affect Microsoft's business significantly, arguing, "from a valuation basis, even if we take a 10%+ haircut to the cloud and enterprise growth drivers, we are still looking at what we value as a $1 trillion valuation cloud franchise."

As a result, Wedbush raised its price target on Microsoft to $285 from $270 calling the quarter a "sweep the leg" moment for bears.

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Another highlight of the quarter can be seen in Microsoft's gaming business, which had its first $5 billion quarter with Xbox content and services revenue growing 38%. The addition of a Netflix-style subscription service called Game Pass added to results and will provide another runway for revenue going forward.

Microsoft traded at $236.09 premarket as of 8:39 am EST, giving the company a market cap of $1.76 trillion.

The big tech giant boasts 33 "buy" ratings, zero "sell" ratings, and five "neutral" ratings from analysts.


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