Microsoft’s (MSFT) stellar first-quarter fiscal 2022 (Q1F22) results buoyed up the company’s market capitalization to $2.43 trillion, threatening to replace Apple (AAPL) as the most valuable company in the world (per data from Refinitiv).
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Strong adoption of its Azure cloud offerings fueled Microsoft’s top-line growth, driven by the onboarding of mission critical workloads like ERP instances & analytics onto the Azure platform. The Teams app, Power Platform, LinkedIn business and Gaming segments showed continued traction, providing more tailwinds.
Impressive expansion in operating margin, strong cash flows, and a meaningful net-cash position on the balance sheet were other confidence boosters. Moreover, an upbeat guidance for the December quarter was also a positive.
Following the results, Bank of America analyst Bradley Sills reiterated a Buy rating on the stock, and raised the price target to $365 from $340. “We believe that Microsoft is well positioned to generate sustained low double-digit growth in the coming 3-5 years, led by continued adoption of Azure cloud infrastructure platform, cloud based Office 365 productivity suite and more profitable Games and Game Pass revenue in Xbox,” he observed.
Despite the gradual shift of revenue mix toward the lower margin-generating segments like Azure and Office 365, Sills says that these are only near-term margin concerns, and the long-term looks bright as “operating expense scale is likely to drive stable 70 to 110 basis point margin expansion in the coming years.” (See Analysts’ Top Stocks on TipRanks)
Going forward, Sills anticipates incremental growth for the company, driven by the newly launched industry cloud offerings. Sills is also encouraged by the prospects of Azure’s segmental margin. “We are encouraged by continued ramp in cloud gross margin with estimated Azure margin in the 59%-60% range, trending toward industry competitive low 60s level,” he said.
Sills also made an important observation. Interestingly, Microsoft reported a low single-digit growth in its legacy Server annuity and Windows businesses. This shows that the company’s efforts to drive cloud business growth did not affect the profitability and growth of its traditional businesses.
Turning to Wall Street, the analyst consensus is also optimistic about Microsoft, with a Strong Buy rating based on 21 unanimous Buys. The average Microsoft price target of $363.14 indicates an upside potential of 12.8%.
Additionally, there is also an interesting piece of information that we came across with the help of TipRanks’s website traffic tool. When we compared the 2021 year-to-date period to the same period in 2020, we noticed that the visits to all of the company’s website climbed by 24.59%. The share price rose 4.27% over that same period, likely reflecting the increased interest in the company.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
