Following the report, Ader has upgraded Microsoft from Market Perform to Outperform based on the company’s potential to gain major IT market share in coming years.
“Looking back on our initiation report from July 18, 2016, we believe we underestimated both the net impact of cloud revenue growth on the overall business and the cloud gross margin trajectory,” Ader explained.
According to Ader, William Blair’s checks indicate that Microsoft is a trusted name among enterprises that are transitioning to the cloud, and he believes that transition is still in the early stages.
Given Microsoft’s impressive cloud growth, Ader predicts that the stock’s enterprise-value-to-free-cash-flow multiple has room for expansion.
Microsoft’s cloud segment delivered more than $13 billion in annualized revenue in Q3, up about 60 percent year-over-year (Y/Y). In addition, commercial cloud gross margins jumped 7.0 percent to 49 percent Y/Y. William Blair believes commercial cloud operating margins expanded as well.
Guidance for fiscal Q2 came up a bit short of the consensus midpoint, but Ader noted that almost all of the weakness comes from the More Personal Computing segment, which was likely just incorrectly modeled by the Street.
So far this year, Microsoft shares are up 7.5 percent.
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|Oct 2016||William Blair||Upgrades||Market Perform||Outperform|
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