Microsoft’s Market Cap Briefly Crosses $1 trillion

Microsoft’s Market Cap Briefly Crosses $1 trillion
April 26, 2019


Microsoft Corporation (Nasdaq: MSFT) and Facebook, Inc. (FB) started the tech earnings season, with both multinationals exceeding analysts anticipations. Specifically, Microsoft shares leaped more than 5% percent on Thursday, nudging the software behemoth beyond $1 trillion market capitalization on higher-than-anticipated earnings and revenue, driven by a sudden increase in Windows revenue and robust growth in its cloud division.

To attain a market cap of $1 trillion, the stock had to first hit $130.51. It moved up to $131.37, before ending the trading session at $129.15, up $4.14 or 3.31% from the previous close. The stock has been on a bullish uptrend, gaining over 30% from the low recorded in December.

The Redmond based company posted Q3 revenues of $30.60 billion, an increase of 14% from the prior year. On average, analysts polled by Thomson Reuters had anticipated revenues of $29.84 billion. The increase in sales was led by the company’s focus on public cloud business as several large enterprises abandon their servers and move their crucial data to Azure infrastructure.

For the recent quarter, net income was $8.81 billion or $1.15 per share, compared with $7.42 billion, or $0.96 per share, in the prior year similar period. Excluding charges, earnings increased to $1.14 per share, surpassing the $1 forecast made by the Wall Street analysts. Gross margin increased to 66.7%, from 65.4% in the year-ago period.

Cloud business, which includes Azure, Office 365, and LinkedIn, generated $9.65 billion in revenue, up 41% on a y-o-y basis. Analysts had forecast revenue of $9.30 billion from Cloud division. Amy Hood, CFO of Microsoft stated that she anticipates cloud revenue to reach $11.05 billion in the current quarter.

Analysts anticipated the company’s commercial cloud business to reach a run rate of nearly $38.50 billion. In its quarterly results, Microsoft revealed that its commercial cloud run rate reached $38.40 billion. Specifically, Azure’s revenue soared 73%.

Commenting on the results, Microsoft CEO Satya Nadella said: “Leading organizations of every size in every industry trust the Microsoft cloud. We are accelerating our innovation across the cloud and edge so our customers can build the digital capability increasingly required to compete and grow.”

The “productivity and business process” division, which includes both professional network LinkedIn and Office, reported revenues of $10.2 billion, versus analysts’ anticipation of $10.05 billion. Hood predicts revenues of $10.75 billion for the division in the fourth quarter.

Despite posting splendid results, analysts have pointed out two worries. The company’s gaming division recorded growth of only 5%, down from 8% in the previous quarter. A drop in revenue from third-party game developers and postponement in the purchase of Xbox console because of anticipation of a new model launch has resulted in weak gaming growth revenue. Similarly, Microsoft’s Surface hardware grew 21%, against 39% in the previous quarter. Again, in this case, it is believed that customers are waiting for the release of updated hardware.

Even though Azure is much smaller compared to Amazon Web Service (AWS), the Cloud business of the e-Commerce giant, Stifel analysts said that it is growing at a faster rate than AWS was at a comparable size. Notably, Azure surpassed the 68% growth forecast by analysts at Mizuho Securities.

Regarding the growth prospects of Azure, Mizuho analysts said: “We continue to be very bullish on Azure’s positioning.” The equity research firm has issued a “buy” rating for the stock.

During the earnings call, Microsoft stated that Q4 revenues would be in the range of $32.20 billion to $32.90 billion. The median estimate of analysts currently stands at $32.60 billion.

Besides growing cloud computing, Microsoft also profits from the shift to cloud apps, convincing clients of its conventional productivity tools like Word, PowerPoint, and Excel to the cloud-oriented Office 365 suite. Office 365 recorded revenue growth of roughly 30%. Likewise, LinkedIn, the social networking platform Microsoft took over in 2016, keeps on growing at a much quicker rate than the core business.

LinkedIn’s revenue in the three months ended March 2019 rose 27%. Microsoft and AWS are vying for a $10 billion contract from the Department of Defense, referred to as JEDI, since IBM and Oracle were eliminated in recent times. A week before, Wedbush analysts opined that the situation is favoring Microsoft CEO Satya Nadella in his attempt to reach the level of Jeff Bezos from Amazon.

Regarding the probability of receiving the contract from Pentagon, Daniel Ives, an analyst at Wedbush, wrote as follows: “The tide has turned significantly for MSFT on the ‘game-changing’ $10 billion JEDI Beltway cloud deal for the Pentagon with our work in the field indicating this bake-off is now a toss-up and even odds between Bezos and Nadella vs. the slam dunk win for AWS that it appeared to be roughly a year ago.”

He further said, “it could represent a key positive catalyst for MSFT looking ahead when this winner likely gets announced in the summer time-frame.”  

Considering the strong results, we can expect the stock to attempt crossing the $1 trillion market cap again in the days to come.

Technically, the stock is firmly on an uptrend as indicated by the 50-day moving average. The MACD indicator is also making new highs. As a result, we prefer the stock to continue its upward journey in the short-term.

msf - technical analysis - 26th April 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to tradin


Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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