Cloud Revenue Aids Microsoft to Beat Q1 Estimates

Cloud Revenue Aids Microsoft to Beat Q1 Estimates
October 25, 2016

 
Last week, in spite of reporting a decline in the fiscal 2017 first-quarter GAAP earnings, the shares of Microsoft Corp (NASDAQ: MSFT) appreciated in the aftermarket hours to hit a high of $60 per share – the price at which it traded in 1999. Undeniably, one of the main reasons for the rise in the share price is that the non-GAAP earnings surpassed the analysts’ estimates. However, the solid transition of Microsoft from traditional software to cloud based subscription services, as explained below, has started to alleviate the concerns of investors. Ultimately, this has started to reflect on its share price. Microsoft ended Monday’s trading session at $61, up $1.24 or 2.25%.

The Washington-based Microsoft reported fiscal 2017 first-quarter GAAP income of $4.69 billion, or $0.60 per share, on revenue of $20.453 billion. In the previous fiscal-year, the software giant recorded first-quarter net income of $4.902 billion, or $0.61 per share, on revenue of $20.379 billion.

On a non-GAAP basis, the Q1 2017 net income was $5.989 billion, or $0.76 per share, on revenue of $22.334 billion. In Q1 2016, the net income was $5.661 billion, or $0.70 per share, on revenue of $21.660 billion. The analysts expected the company to report earnings of $0.68 per share on revenue of $21.7 billion.

Productivity and Business Processes segment, which comprises of Office and other apps, reported revenue of $6.7 billion, up 6% on y-o-y basis. The Dynamics product line performed exceptionally with 11% y-o-y gains. One of the notable additions to the list of big clients is HP Inc.

Revenues from the Cloud segment increased 8% to $6.4 billion. In particular, the usage of the Azure platform doubled, while the revenues increased 116%. Recently, Microsoft opened a new data center in the France and UK, and enrolled the UK’s Ministry of Defense as its customer.

The Personal Computing segment posted a 2% y-o-y decline in revenue to $9.3 billion. However, it was better than the 5% fall anticipated by the analysts. The number of monthly active users of Xbox Live increased to 47 million, from 39 million in the similar period last year. Another bright spot in the quarterly report is the increase in the search engine revenue by 9% on a y-o-y basis.
During the quarter, Surface fondleslab sales increased 37%, while the orders for 500 units or more increased 70%. Microsoft is also setting up a dedicated AI (Artificial Intelligence) unit to make all its products more responsive.

The historic price chart reveals that the stock is receiving buyer’s support at 57 levels. The Chaikin money flow indicator shows that the money continues to flow into the stock. The momentum indicator is still far below the historic high levels. Furthermore, the stock has continuously closed above the 50-day moving average for the past one month. Thus, we expect the share price of Microsoft to rise to a high of about $68 in the weeks to come.

Microsoft - Technical Analysis - 25th October 2016

So, a one touch call option can be bought to generate profit from the likely uptrend in the stock. The binary trader should pick a target price below $66 and an expiry date in the third-week of November to boost the probability of success in the call option trade.

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Andrew Wright

Prior to founding tradersasset.com 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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