Microsoft (MSFT) has become one of the most successful and important players in the tech industry. It’s deeply embedded on almost every desktop and laptop of every business user and consumer globally. And it’s aggressively innovative when competition appears.
When Slack rose to prominence, Microsoft Teams attacked it head-on. When Alphabet (GOOG) and Amazon (AMZN) spearheaded cloud computing, Microsoft launched its own service. Even Bing was an attack on Google’s search dominance. The company is a juggernaut that is nearly impossible to stop at this stage, but that makes for a potentially good investment.
The Bull Case For Microsoft
It might come as a surprise just how massive Microsoft’s commercial cloud revenue is: a whopping $69 million in annual sales, representing a rise of 34% year over year. Indeed over 75% of Fortune 500 companies have chose Microsoft.
MSFT is also enjoying success as enterprises have transitioned ERP workloads to Azure. Examples of those choosing Microsoft include ServiceNOW (NOW) and Campbell Soup.
LinkedIn, security and gaming each rose to more than $10 billion in yearly revenue. LinkedIn revenue is up 27% for the year and 774 million members engaged.
The laundry list of positives continues. Cosmos DB is relied upon by Walmart (WMT) to service customers via billion of online requests.
Microsoft’s strategic acquisition of GitHub is now relied upon by 72% of Fortune 50 companies. Github is the go-to source for building, shipping and maintaining software. Even NASA relies on GitHub.
When it comes to games, Microsoft is a titan. At the recent E3 event, a total of 27 new titles were announced and all available to Game Pass subscribers, who spend 50% more than non-members and play 40% more.
And 5G remains a growth vector as AT&T selected Azure to catalyze its core network.
MSFT Earnings Estimates
Microsoft has beaten every revenue estimate since 2019 Q1.
On April 27, 2021, it reported $41.71 billion in actual revenue, easily beating the estimate of $40.83.
Microsoft did even better on July 26 when it reported an actual revenue of $46.15 billion compared to its $44.30 billion estimate.
When you look at these earning estimates and actual revenues, it’s hard not to get excited about Microsoft’s ongoing prospects. It’s important to remember that Microsoft has business-facing and consumer-facing products and services.
Most people have Windows operating systems on their computers. When it comes to businesses, though, products like Power BI, MyAnalytics, and Power Automate have become important sources of revenue.
While Microsoft Azure is far from the leading cloud services provider, it’s still a major option that thousands of high-profile, international companies rely on. Assuming that cloud technology will define the future of computing, Microsoft (MSFT) has positioned itself well to survive threats from younger businesses.
Microsoft Earnings Whisper Number
Earnings Whispers has a lot of good things to say about Microsoft’s current and future earnings. It’s hard to ignore that 100% of analysts consider it a buy. The trends also look good. The short-term price is expected to rise (although investor sentiment is down). The intermediate-term price is expected to take a hit, but that isn’t such a big deal because the long-term stock price and earnings estimates are predicted to rise.
Are There Chinks In The Armor At MSFT?
Microsoft has few skeptical analysts. The fundamentals are undoubtedly strong – the question is more about whether price has run ahead of value.
It comes down to whether MSFT can break free from its core products and continue innovating. So far, the company has done fairly well, although its cloud services don’t come close to competing with the popularity of Amazon’s.
It’s important to remember that Microsoft comes from a background of innovation. The company revolutionized operating systems, which is why so many people still use a Windows OS.
The market demands ongoing innovation, though. And the innovations must make money that attracts new investors and drives up share prices. Can Microsoft accomplish these goals?
History would suggest its innovations in gaming, acquisitions like Github, and market penetration in cloud are positive signs. But the company has failed spectacularly too in building a phone (remember its acquisition of Danger) and has made very little dent in Google’s share of search traffic via Bing. Still, it’s tough to get too negative about a company that virtually prints money.
MSFT Post Earnings History
More often than not, MSFT share price has increased after management releases earnings reports. That’s not particularly surprising given that the company almost always exceeds its estimated earnings.
The good news is that Microsoft keeps growing. The bad news is that the growth doesn’t generate excitement. Perhaps investors take its high gross margins, massive cash hoard, and revenue growth for granted.
Why doesn’t MSFT’s excellent performance create massive shifts in share prices? The company’s history of success could hold it back. Few expect Microsoft to under-perform. Certainly, it might miss its mark on occasion, but it has enormous tailwinds to power it towards ever increasing sales and earnings.
Will Microsoft Go Up After Earnings?
If history is a good indicator, Microsoft has every chance to rise post earnings release. Don’t expect the price to skyrocket, though. A few dollars will fulfill the typical response.
Still, there’s no denying that Microsoft almost certainly offers a long-term investment option. Even if the company’s stock doesn’t grow much, it can serve as a stabilizing force in your portfolio.
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