Microsoft Earnings Preview: Cloud Business, Acquisitions Help Fuel Growth |

  • Reports Q3, 2021 outcomes on Tuesday, Apr. 27, after the market shut
  • Revenue Expectation: $41.04 billion
  • EPS Expectation: $1.78

Looking at Microsoft’s (NASDAQ:) regularly escalating share worth, it’s apparent buyers don’t see the tech large’s sturdy development momentum, which was sparked by the outbreak of the pandemic in March 2020, being interrupted anytime quickly.

Microsoft Weekly Chart.

The inventory, after surging about 40% final yr, is up one other 17% this yr, outpacing the features of the benchmark , which rose 9% throughout the identical interval.

The Redmond, Washington-based software program behemoth has been a significant beneficiary of lockdowns and the stay-at-home setting they triggered through the previous yr, when each company and particular person reliance on technology surged, for the gadgets and providers Microsoft sells.

These favorable situations are more likely to stay even by means of the gradual reopening of the economic system after the vaccine rollout within the U.
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S. and European. The firm is forecast to report a 27% bounce in its earnings per share to $1.78 for the fiscal 2021 third-quarter, compared with the identical interval a yr in the past. Sales are more likely to improve by 17% to $41.04 billion, in line with analysts’ consensus forecast.

Due to this sturdy earnings momentum, all 25 analysts protecting Microsoft have a purchase ranking on the inventory, in line with Tipranks. Their consensus, one-year worth goal is $288.08, an 11% increase from its Monday’s closing worth of $261.55 a share.

When a inventory is buying and selling close to an all-time excessive going into an earnings report and buyers are so bullish, it is sensible to watch out and search for the fitting alternative to leap in. Microsoft, in our view, will probably be a terrific candidate to purchase on any post-earnings weak spot if that happens. 

Acquisition Spree

There are many causes to stay bullish on MSFT. The most essential one is the corporate’s rising share within the cloud-computing market the place it’s the second-largest supplier after Amazon (NASDAQ:).  

Growth in that division jumped 50% within the earlier quarter as company shoppers accelerated a shift to the cloud through the pandemic, the place they’ll retailer knowledge and run functions by way of the web. For greater than three years working, income from Microsoft’s Azure service has virtually doubled every quarter.

With cloud gross sales surging and the corporate’s legacy Office product persevering with to provide hefty money, MSFT’s current acquisition spree is additional opening up new development alternatives. Early this month, Microsoft agreed to purchase synthetic intelligence firm Nuance Communications (NASDAQ:). The all-cash deal is Microsoft’s second largest acquisition after its $26-billion deal in 2016 to purchase skilled community LinkedIn. Microsoft has undertaken greater than 100 acquisitions previously 4 years, in line with knowledge supplier Dealogic.

Microsoft CEO Satya Nadella believes Nuance will assist the corporate to seize market share in tech functions for health care, the place the usage of synthetic intelligence is exploding. “This is projected to be one of the fastest-growing infrastructure software revenue streams in history,” he mentioned about Nuance’s experience in scientific documentation.

Bottom Line

MSFT is well-positioned to broaden its market share into new areas of the digital economic system whereas sustaining its main place with legacy software program merchandise like Windows and Office.

This sturdy benefit will assist the corporate obtain sustained double-digit development in income, earnings per share and free money movement, making it a dependable tech inventory to personal over the long run.

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