Microsoft Sales Beat as Pandemic Lifts Cloud Biz; Barclays Raises PT to $204

Microsoft Corp. (MSFT) surpassed quarterly revenue expectations as global stay-at-home orders accelerated demand for its commercial cloud services as well as its Teams collaboration software.

Revenue advanced 15% to $35 billion in the third quarter ending March 31, up from the $33.66 billion estimated by analysts. Net income increased to $10.75 billion, or $1.40 per share, from $8.81 billion, or $1.14 per share, year-on-year.

“As COVID-19 impacts every aspect of our work and life we’ve seen two years’ worth of digital transformation in two months. We are working alongside customers every day to help them stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft. “We delivered double-digit topline and bottom line growth once again this quarter, driven by the strength of our commercial cloud.”

Commercial Cloud revenue generated $13.3 billion, up 39% year-on-year. Nadella told investors that the company saw more than 200 million meeting participants in a single day this month, generating more than 4.1 billion meeting minutes. Microsoft Teams software has more than 75 million daily active users, he added. In healthcare alone, there were more than 34 million Teams meetings in the past month.

More than 183,000 educational institutions now rely on Teams. In the United Arab Emirates, more than 350,000 students are using Teams. In Italy, the University of Bologna chose Teams to move 90% of their courses for 80,000 students online in just three days.

Twenty organizations with more than 100,000 employees are now using Teams, including Continental AG, Ernst & Young, Pfizer, and SAP. Last week, Accenture became the first organization to surpass half a million users.

The software giant’s shares rose less than 1% to $178.40 in afternoon U.S. trading on Thursday after advancing 13% over the past month.

Following the earnings release, five-star analyst Raimo Lenschow at Barclays raised Microsoft’s price target to $204 from $190, while maintaining a Buy rating on the stock.

“Microsoft should continue to be a key holding in the software space and emerge as a stronger vendor post COVID-19 crisis,” Lenschow told investors in a research note. “The COVID-19 crisis seems to be creating opportunities for Microsoft as customers are looking towards digital transformation to be better prepared in the future and to reduce costs.”

Wall Street analysts have a Strong Buy consensus rating on Microsoft’s stock based on a stellar 24 Buys and 1 Hold assigned in the last three months. The $197.65 average price target provides investors with 11% upside potential in the shares should it be met in the coming 12 months. (See Microsoft stock analysis on TipRanks).

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