Analyst Note| Dan Romanoff, CPA |
Wide-moat Microsoft continues to benefit from an ongoing wave of digital transformation, which helped the company once again drive material upside compared with its revenue and EPS outlook for the quarter. Guidance for the first quarter was nicely above FactSet consensus as well. Azure and commercial related demand was robust by any measure, even as supply constraints for PCs and Surface tablets hurt on the consumer side. Importantly, commercial bookings and RPO, two forward-looking metrics, both continue to significantly outpace revenue growth. We remain impressed with Microsoft's ability to drive revenue and margins at this scale and we believe there is more to come on both 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. Quarterly strength along with upside to guidance and the annual roll of our DCF model drive our fair value estimate to $325 from $278 per share. We continue to see upside to this high-quality name from here.