There’s More Upside Ahead For Microsoft Corporation (MSFT)

Microsoft’s earnings for its fiscal first quarter were strong across the board.

The Microsoft Logo at a press conference at the 2011 International Consumer Electronics Show January 5, 2011 in Las Vegas, Nevada.

Microsoft Corporation (Nasdaq: MSFT) was to open up 4 percent Friday from the previous day’s close, thanks to bullish investor sentiment and an impressive earnings report for its fiscal first quarter of 2018.

Microsoft reported earnings per share of 84 cents on revenue of $24.5 billion. Both numbers topped consensus analyst estimates of 72 cents and $23.5 billion, respectively.

Microsoft also reached its goal of $20 billion in annualized cloud revenue on the quarter, reporting an annual run rate of $20.4 billion. (AMZN) may have wowed Wall Street with its 42 percent cloud revenue growth, but Microsoft’s Azure more than doubled the growth rate of Amazon Web Services.

Canalys recently estimated that AWS’s 30 percent cloud market share is roughly double Azure’s 14 percent share. However, Azure’s 90 percent revenue growth in the most recent quarter was more than double AWS’s 42 percent growth rate, suggesting Microsoft may be closing the gap.

“We have been impressed by solid execution and strong customer adoption of Microsoft’s cloud applications and platforms,” KeyBanc analyst Brent Bracelin wrote earlier this week, according to MarketWatch. “Similar to the multiyear transition at Adobe Systems (ADBE), we still view Microsoft in the early innings of cloud migration.”

Outside of the cloud business, Microsoft reported Office 365 commercial subscriptions were up 42 percent on the quarter. Microsoft’s More Personal Computing revenue, which represents the company’s legacy PC business, was down just 1 percent on a constant currency basis to $9.4 billion. Analysts had expected less than $9 billion in PC revenue.

LinkedIn revenue for the quarter was $1.1 billion.

Gaming revenue was up 1 percent, with Xbox software and services revenue up 21 percent on the quarter.

Microsoft stock is now up more than 76 percent in the past three years, and investors may be wondering how much upside is left. Evercore ISI managing director and head of technical analysis Rich Ross says the stock has plenty of room for upside considering its long-term track record.

“The stock in 2000 was at $60. We’re at $85 now. That’s an average annual return of about 3 percent if my math is somewhere close,” Ross said on CNBC. “I think there’s a lot more upside in Microsoft.”

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Stock information as of October 27th, 2017

Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences f… full bio ยป

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