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Microsoft Corp MSFT

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Microsoft Reports Material Upside Thanks to Office 365, the Consumer, and Azure; Raise FVE to $235

Dan Romanoff, CPA Equity Analyst

Analyst Note

| Dan Romanoff, CPA |

Microsoft continues to actually benefit from coronavirus-related issues, which helped the company drive material upside compared with its revenue and EPS outlook for the quarter. Azure remains strong, while consumer-related revenue was once again nicely ahead of our expectations as the global lockdowns continued this quarter. Importantly, commercial bookings and RPO, two forward-looking metrics, both continue to grow well in excess of revenue. 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. A variety of generally minor model refinements drive our fair value estimate to $235 from $228 per share. We still see more than 10% upside to this high-quality wide-moat name.

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Company Profile

Business Description

Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three overarching segments: productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), intelligence cloud (infrastructure- and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops). Through acquisitions, Microsoft owns Xamarin, LinkedIn, and GitHub. It reports revenue in product and service and other revenue on its income statement.

Contact
One Microsoft Way
Redmond, WA, 98052-6399
T +1 425 882-8080
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Sep 30, 2020
Fiscal Year End Jun 30, 2021
Stock Type Aggressive Growth
Employees 163,000

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