Microsoft Beats 4Q17 View, Azure Grows 97% y-o-y

Azure conference 2016 - photo - July 2017The software behemoth Microsoft Corp (NASDAQ: MSFT) reported its fiscal 2017 fourth-quarter results last week. The company exceeded expectations across all segments. In particular, revenues from the cloud computing platform Azure grew 97% on y-o-y basis. Microsoft also provided an impressive fiscal 2018 first-quarter outlook. Thus, we anticipate the stock, which closed at $73.04, to record new yearly highs in the days to come.

The Redmond-based company reported 4Q17 GAAP and non-GAAP revenues of $23.317 billion and $24.70 billion, respectively. In the similar period of 2016, GAAP and non-GAAP revenues were $20.614 billion and $22.641 billion, respectively. The Street had expected Microsoft to report non-GAAP revenues of $24 billion.

Aided by a strong growth in Personal computing and Intelligent Cloud operating income, the GAAP net income doubled to $6.513 billion, or $0.83 per share in Q2 2017, from $3.122 billion, or $0.39 per share, in the same period of 2016.

Excluding the impact of Windows 10 revenue deferrals and impairment and restructuring expenses, the non-GAAP net income of $7.665 billion, or $0.98 per share, was higher than $5.483 billion, or $0.69 per share, in the corresponding quarter of 2016, and greater than Thomson Reuters estimates of $0.71 per share.

The non-GAAP earnings per share include a tax benefit of $1.8 billion or $0.23 per share related to the utilisation of prior years’ losses from the company’s mobile phone business.

Segment wise, Product revenue declined $219 million y-o-y to $13.769 billion. Service and other revenue increased to $9.55 billion, from $6.63 billion last year.

Microsoft’s Intelligent Cloud division, which includes Azure, reported a 11% y-o-y increase in revenue to $7.4 billion. Microsoft does not provide exact revenues generated from Azure and other products. However, it does provide the y-o-y revenue growth in percentage.

On y-o-y basis, Dynamics 365 and Office 365 Commercial grew 74% and 43%, respectively. Notably, LinkedIn, which was acquired by Microsoft for $26.2 billion last year, contributed about $1.1 billion in revenues.

More and more companies are expected to use the cloud oriented solutions in the years ahead. To capitalise on the opportunity, Microsoft is launching Azure IoT Edge for businesses to use all the capabilities of the Azure IoT cloud platform.

Looking ahead, Microsoft stated that it anticipates fiscal 2018 first-quarter revenue of between $23.6 billion and $24.3 billion. The 1Q18 outlook does not include corporate and other revenue. During the fourth-quarter, the company returned $4.6 billion to shareholders in the form of share repurchases and dividends. On the basis of strong fourth-quarter results, the impressive growth of Azure platform and upbeat 1Q18 revenue outlook, we forecast the stock to remain bullish in the near-term future.

Technically, the bullishness in the stock is indicated by the rising momentum indicator. The bullish view is also confirmed by the RSI indicator’s reading of over 50. Furthermore, the historic price chart indicates support for the stock at 69.80. Thus, we can expect the uptrend to continue in the short-term.

Microsoft - Technical Analysis - 31st July 2017

We prefer to invest in a call option to benefit from the current rally. The investment would be made when the stock trades near $73 in the NASDAQ. Additionally, the option should be valid for a period of one week.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.