Skip to Content
Stock Analyst Update

Microsoft Crushes Quarter

We bumped our growth and margin assumptions up throughout our model and as a result, raise our fair value estimate to $185 from $155.

Mentioned: ,

Microsoft (MSFT) continued its string of impressive quarters, with meaningful upside to revenue, operating margin, and EPS. Demand was broad based across segments and geographies. We remain impressed with Microsoft's ability to drive revenue and margins at this scale and we continue to believe there is more to come on both the revenue and margin fronts.  Results continue to underscore our thesis, which centers on customer adoption of hybrid cloud environments with Azure. Microsoft continues to use its dominant position of on-premises architecture to allow customers to move to the cloud easily and at their own pace, which we believe will continue over the next five years. Adoption of IaaS, PaaS, and SaaS cloud services remains robust and continues to outperform our expectations from both a revenue and margin perspective. As such, we bumped our growth and margin assumptions up throughout our model and as a result, are raising our fair value estimate to $185 from $155. We believe Microsoft is firing on all cylinders and see further upside to shares if the company can continue to deliver results like those reported for the second quarter.

For the December quarter, revenue grew 14% year over year to $36.9 billion, while GAAP EPS was $1.51 compared with $1.08 a year ago. Both measures were ahead of our in-line estimates of $35.7 billion and $1.31, respectively. All three segments were ahead of our model. Intelligent cloud continues to drive the story, with Azure accelerating sequentially to 62% year over year growth--a positive surprise for the most crucial element of the company’s growth. On-premises server units remain strong and continue to benefit from strong upgrades ahead of product sunsetting, which we do not see as sustainable. Operating margin was 37.6%, up 600 basis points year over year driven largely by rapidly improving gross margin in commercial cloud. Upside to revenues, better gross margins, and controlled operating expenses resulted in significant EPS upside.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Dan Romanoff does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.