Microsoft Corporation (MSFT) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Microsoft Fiscal Year 2021 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brett Iversen, General Manager of Investor Relations. Thank you. You may begin. Brett Iversen: Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer; Amy Hood, Chief Financial Officer; Alice Jolla, Chief Accounting Officer; and Keith Dolliver, Deputy General Counsel. Satya Nadella: Thanks much, Brett. We had a very strong close to our fiscal year. Our commercial cloud surpassed $69 billion in annual revenue, up 34%. We have seen revenue growth across industries, customer segments and geographies with over 50% of sales coming from outside the United States. We continue to grow new franchises for Microsoft in large and growing markets. In the past three years alone, gaming, security and now LinkedIn, have all surpassed $10 billion in annual revenue. Amy Hood: Thank you, Satya, and good afternoon, everyone. This quarter, revenue was $46.2 billion, up 21% and 17% in constant currency. Earnings per share was $2.17, increasing 49% and 42% in constant currency. In our largest quarter of the year, focused execution by our sales and partner teams, along with broad-based strength across geographical markets and customer segments drove another very strong quarter of top and bottom line growth. In our commercial business, healthy demand for our differentiated hybrid and cloud offering as well as increased long-term commitment to our platform drove significant growth in the number of $10 million-plus Azure and Microsoft 365 contracts. Customer reliance on the Microsoft Cloud drove sequential increases in usage across Teams, Power Platform and our Advanced Security and identity offerings, which are empowering organizations to shift to hybrid work and modernize business processes. And in LinkedIn Talent Solutions business, an improving job market drove strength in annual contracts and job postings. In our on-premises business, strong annuity performance across Officer, Server and Windows also benefited from a greater mix of contracts with higher in-period revenue recognition under ASC 606. In our Consumer business, Windows OEM and Surface were impacted by the ongoing constraints in the supply chain. Search and LinkedIn benefited from an improved advertising market. And in gaming, we again saw strong engagement across our platform, while demand for Xbox Series X and S consoles continued to exceed supply. As a reminder, Q4 was the first full quarter impacted by COVID-19 a year ago across revenue and operating expense. This quarter, even with a declining exploration base, commercial bookings grew 30% and 25% in constant currency, significantly ahead of expectations, driven by strong execution across our core annuity sales motions and an increase in the number of larger long-term Azure contracts. As a result, commercial remaining performance obligation increased 32% and 31% in constant currency to $141 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 25% year-over-year. The remaining portion, which will be recognized beyond the next 12 months, increased 38% year-over-year, highlighting the growing long-term commitment to our Microsoft Cloud. And our annuity mix increased 1 point year-over-year to 95%. Commercial cloud revenue, also better than expected, was $19.5 billion as growth accelerated to 36% and 31% in constant currency. Commercial cloud gross margin percentage expanded 4 points year-over-year to 70%, with roughly 1 point from the change in accounting estimate for the useful life of server and network equipment assets. Excluding this impact, commercial cloud gross margin percentage increased despite revenue mix shift to Azure, driven by improvement across all our cloud services on a prior year comparable impacted by strategic investments we made to support significant customer engagement and usage in remote work scenarios, including free trials, flexible financing options and capacity for cloud infrastructure usage. With the weaker U.S. dollar, FX increased growth by approximately 4 points, about 1 point more favorable than anticipated. FX increased COGS growth by approximately 1 point and operating expense growth by approximately 2 points, both in line with expectations. Gross margin dollars increased 25% and 20% in constant currency. Gross margin percentage was 70%, up 2 points year-over-year, with roughly 1 point of favorable impact from the change in accounting estimate. Excluding this impact, Company gross margin percentage increased despite sales mix shift to the cloud, driven by commercial cloud gross margin percentage improvement noted earlier. Operating expense grew 6% and 4% in constant currency, in line with expectations on a prior year comparable that included roughly 4 points of impact from the realignment of our retail storage strategy and 2 points of impact from an increase in bad debt expense. Overall, Company headcount grew again this quarter, up 12% year-over-year as we continue to invest across key areas like cloud engineering, sales and customer deployment. Operating income increased 42% and 35% in constant currency, and operating margins expanded 6 points year-over-year to 41%, including roughly 2 points of impact from the retail stores charge and increase in bad debt expense in the prior year and nearly 1 point of favorable impact from the change in accounting estimate. Now, to our segment results. Revenue from Productivity and Business Processes was $14.7 billion and grew 25% and 21% in constant currency with better-than-expected performance across all businesses. Office Commercial revenue grew 20% and 15% in constant currency. Office 365 Commercial revenue grew 25% and 20% in constant currency, again driven by installed base expansion across all workloads and customer segments, as well as higher ARPU. Paid Office 365 Commercial seats increased 17% year-over-year, with continued recovery driving acceleration in our small and medium business and frontline worker offerings. Demand for Microsoft 365, particularly for security, compliance and voice drove strong E5 momentum again this quarter. E5 now accounts for 8% of our Office 365 Commercial installed base. And on a low prior year comparable impacted by a slowdown in transactional purchasing, Office Commercial licensing was ahead of expectations, down 8% and 11% in constant currency, also benefiting from higher in-period revenue recognition noted earlier. In Office Consumer, revenue grew 18% and 15% in constant currency, driven by continued momentum in Microsoft 365 subscriptions, which grew to 51.9 million, up 22% year-over-year. Dynamics revenue grew 33% and 26% in constant currency, better than expected. Dynamics 365 revenue growth was 49%, and 42% in constant currency, with strong momentum in Power Apps and Power Automate, reflecting growing demand for our modern solutions to build apps and automate workflows. Dynamics 365 now accounts for over 70% of total Dynamics revenue. LinkedIn revenue increased 46% and 42% in constant currency, ahead of expectations against the comparable impacted by the advertising and job markets of a year ago. Segment gross margin dollars increased 33% and 27% in constant currency, and gross margin percentage was up 5 points year-over-year, primarily driven by improvement in our cloud services against a low prior year comparable impacted mostly by increased usage. The change in accounting estimate drove roughly 1 point of favorable impact. Operating expense increased 8% and 6% in constant currency, and operating income increased 62% and 53% in constant currency, including 4 points due to the change in accounting estimate. Next, the Intelligent Cloud segment. Revenue was $17.4 billion, increasing 30% and 26% in constant currency. We exceeded expectations across our consumption and per-user Azure businesses as well as in our on-premises server products business. Overall, server products and cloud services revenue increased 34% and 29% in constant currency. Azure revenue grew 51% and 45% in constant currency, driven by strong performance across our core and premium consumption-based services. In our per user business, the enterprise mobility and security installed base increased 29% to over 190 million seats. Our on-premise server business increased 16% and 12% in constant currency, driven by strong annuity performance and benefiting roughly 4 points from the higher in-period revenue recognition noted earlier, particularly in some of our largest deals in the quarter. Enterprise Services revenue grew 12% and 9% in constant currency, driven by growth in premier support services and Microsoft consulting services. Segment gross margin dollars increased 32% and 27% in constant currency. Gross margin percentage increased 1 point year-over-year with roughly 1 point of favorable impact from the change in accounting estimate. Operating expense increased 14% and 12% in constant currency, and operating income grew 46% and 39% in constant currency, including 3 points due to the change in accounting estimate. Now to More Personal Computing. Revenue was $14.1 billion, increasing 9% and 6% in constant currency, with better-than-expected performance in Windows Commercial, gaming and search offsetting OEM and Surface weakness from supply chain constraints. OEM revenue declined 3% and Surface declined 20% and 23% in constant currency as both were impacted by the significant supply chain constraints noted earlier in a good demand environment. Windows Commercial products and cloud services revenue grew 20% and 14% in constant currency, driven by demand for Microsoft 365, with some benefit from the higher in-period revenue recognition, noted earlier. Search revenue ex TAC increased 53% and 49% in constant currency, benefiting from the improved advertising market. And in gaming, revenue increased 11% and 7% in constant currency. Xbox hardware revenue grew 172% and 163% in constant currency, driven by demand for our new consoles. Xbox content and services revenue declined 4% and 7% in constant currency against a high prior year comparable. Segment gross margin dollars increased 8% and 4% in constant currency. Gross margin percentage decreased roughly 1 point year-over-year, driven by sales mix shift to gaming hardware. Operating expense decreased 6% and 7% in constant currency, including approximately 13 points of impact from the retail stores charge in the prior year. And operating income grew 19% and 13% in constant currency. Now, back to our total Company results. Capital expenditures, including finance leases, were $7.3 billion, in line with expectations, driven by ongoing investment to support growing global demand and usage of our cloud services. Cash paid for PP&E was $6.5 billion. Cash flow from operations was $22.7 billion, increasing 22% year-over-year, driven by strong cloud billings and collections. Free cash flow was $16.3 billion, up 17%, reflecting higher capital expenditures in support of our growing cloud business. For FY21, we generated over $76 billion in operating cash flow, up 26% year-over-year, and over $56 billion in free cash flow, up 24% year-over-year. This quarter, other income and expense was $310 million, higher than anticipated, primarily driven by net gains on investments. As a reminder, we are required to recognize mark-to-market gains or losses on our equity portfolio. Our effective tax rate was approximately 15%. And finally, we returned $10.4 billion to shareholders through share repurchases and dividends, bringing our total cash returned to shareholders to over $39 billion for the full fiscal year. Now, before we turn to our outlook, I’d like to provide a few reminders for next fiscal year. Revenue growth rates across all segments will reflect the impact from COVID-19 a year ago, though the impacts do shift as we move through the year. Also, our FY21 operating income and margin benefited from two factors that will be headwinds in FY22: first, the change in accounting estimate for the useful life of server and network equipment resulted in $2.7 billion of depreciation expense, shifting from FY21 to future periods; and second, we saved nearly $1.2 billion in operating expense from COVID-19-related restrictions, which will also moderate in FY22 as geographies reopen globally. With those reminders in place, let’s move to our next quarter outlook. Accelerating digital transformation and consistent strong execution should drive another quarter of growing commitment to our Microsoft Cloud. In commercial bookings, our core annuity sales motions should drive healthy growth on a growing expiry base even against a strong prior year comparable. As always, quarterly volatility in bookings can be driven by an increasing mix of larger long-term Azure contracts, which are more unpredictable in their timing. Commercial cloud gross margin percentage should decrease roughly 1 point year-over-year, with roughly 4 points of negative impact from the change in accounting estimate previously discussed. Excluding the accounting change, Q1 gross margin percentage will increase despite revenue mix shift to Azure, driven by continued improvement across our cloud services on a prior year comparable impacted by the strategic investments we mentioned earlier. Longer term, which excludes the impact of the accounting change, commercial cloud gross margin percentage will continue to be impacted by the same three things we often discuss, revenue mix shift to Azure, increased usage of our cloud services and ongoing strategic investments to support our customers’ success. In capital expenditures, we expect a sequential increase on a dollar basis as we continue to invest to meet global demand for our cloud services. Now to FX. Based on current rates, we expect FX to increase revenue growth of the total Company and all individual segment levels by approximately 2 points and total operating expense and COGS growth by approximately 1 point. Now to segment guidance. In Productivity and Business Processes, we expect revenue between $14.5 billion and $14.75 billion. In Office Commercial, revenue growth will again be driven by Office 365 with healthy seat growth across segments and continued momentum in E5. In our on-premises business, we expect revenue to decline approximately 20%, consistent with the ongoing customer shift to the cloud. In Office Consumer, against a strong prior year comparable, we expect high-single-digit revenue growth with continued momentum in Microsoft 365 Consumer subscriptions. For LinkedIn, continued strong engagement on the platform and improvements in the advertising and job markets should drive revenue growth in the high 30% range. And in Dynamics, we expect continued strength in Dynamics 365, which includes our significant momentum in Power Apps to drive revenue growth in the high-20s. For Intelligent Cloud, we expect revenue between $16.4 billion and $16.65 billion. In Azure, revenue will be driven by continued strong growth in our consumption-based business. And our per user business should continue to benefit from Microsoft 365 suite momentum, though we expect some moderation in growth rate, given the size of the installed base. Therefore, in constant currency, Azure revenue growth should remain relatively stable on a sequential basis. In our on-premises server business, we expect revenue growth in the high single digits, driven by continued demand for our hybrid and premium annuity offerings against a low prior year comparable. And in Enterprise Services, we expect revenue to be in the high single digits. In More Personal Computing, we have estimated the Q1 impact of the required Windows 11 revenue deferral that will shift to Q2 to be approximately $300 million. Therefore, our segment revenue outlook is $12.4 billion to $12.8 billion. Given the 10-point estimated negative impact from the deferral, OEM revenue should decline mid to high single digits in Q1. In Surface, on a strong prior year comparable, we expect revenue to decline in the low teens as we continue to work through the supply chain challenges. In Windows Commercial, products and cloud services, continued demand for Microsoft 365 and our advanced security solutions should drive healthy double-digit growth. In search ex TAC, we expect revenue growth in the high-30s, driven by improvements in the advertising market. In gaming, we expect revenue growth in the low double-digits. Console growth will again be constrained by supply. And on a strong prior year comparable, Xbox content and services revenue should grow low single digits. Now back to Company guidance. We expect COGS of $13.55 billion to $13.75 billion and operating expense of $11.6 billion to $11.7 billion. In other income and expense, interest income and expense should offset each other. And finally, we expect our Q1 tax rate to be approximately 16%, lower than our expected full year rate, given the volume of equity vest in our first quarter. In closing, we remain focused on driving revenue growth as we invest boldly against the strategic high-growth opportunities ahead that will deliver significant value to our customers worldwide. Our outlook for FY22 reflects this with healthy double-digit revenue and operating income growth. Together that results in expanded operating margins in FY22 after excluding the headwinds from the useful life change noted earlier. Together with our customers and partners, we look forward to FY22. Now Brett, let’s go to Q&A. Brett Iversen: Thanks, Amy. We’ll now move to Q&A. Out of respect for others on the call, we request that participants please only ask one question. Operator, can you please repeat your instructions? Operator: Our first question is coming from the line of Keith Weiss with Morgan Stanley. Keith Weiss: Thank you for taking the question, guys. And congratulations on a great FY21 and a great end to the fiscal year. Satya, last year at this time, you made a comment that I think really defined the conversation in software over the past year. When you’re talking about an acceleration in digital transformation you saw coming out of COVID, and I think that’s evident in the results that we see here with 25% growth in your commercial bookings growth. What I want to ask you is the durability of that growth on a going-forward basis. Was that acceleration a pull forward of demand and at some point we’re going to have that hard comp, or do you see durability in this acceleration on a go-forward basis? Is there a lot more to come? And then, Amy, to you, a similar kind of question but more on sort of the margin side of the equation. I think your entire tenure at Morgan -- at Microsoft has really been defined by good operational controls and ability to grow gross profit dollars well ahead of OpEx. Is that durable longer term? Is there still enough sort of efficiency gains at Microsoft to be able to keep that up over the medium term, if you will? Satya Nadella: Thanks so much, Keith, for the question. I mean, the way we see the results today reflect that, but more importantly, on a secular basis, as I think about -- I always go back to that number, which is 5% of the world GDP is tech spend, it’s projected to double. I think that doubling will happen in a more accelerated pace. And we feel well-positioned because of the innovation across the stack. Because if you think about it, what’s going to happen is every business, whether you’re a retailer or a manufacturer, in the service sector, public sector or private sector, digital adoption is the way you’re going to be both, resilient as well as transform the core business processes. And the strength we have is that entirety of the Microsoft Cloud stack, right? So, it’s not just about infrastructure or any application, it’s the entirety of what we do. And so, I think it is durable. Quarter-to-quarter, depending on what happened during the pandemic, depending on the segments that were impacted, for example, the consumer segments that were impacted are coming back and then they’ll normalize. Whereas in our case, we do, in fact, one of the things I love about sort of our exposure is both, it’s a worldwide exposure and it has got the right balance between the consumer segments and the enterprise business-to-business segment. So, it’s a very durable long-term growth prospect that we have tough competition, we need to keep innovating, which is what we’ll stay focused on. Amy Hood: And maybe turning to your margin question, and while I am obviously proud of the work we’ve done, Keith, that you referenced as a team on margins and returns, I would say, in general, our focus remains and has been for the duration of really Satya and I’ve work together along with the rest of the SLT on consistently moving our resources and talent to our highest growth and most differentiated places. When you do that in expansive total addressable markets in the way that I believe we’re focused on as an organization, you do see the type of operating leverage that you’re referring to in margins. And that along, as you see sort of mathematically with a shift in our revenue to higher overall gross margin segments, you do get the results we’ve seen. So, I feel very good about the work we’ve done. And as you heard, I’m quite optimistic about the opportunities we have to invest, leading into FY22 as well. Operator: Our next question comes from the line of Mark Moerdler with Bernstein Research. Mark Moerdler: Thank you very much for taking the question. And again, also, congrats on the quarter, and Amy, thanks for the details and color, especially in the guidance. So, I want to ask about seasonality in Azure. Traditionally, we’ve seen seasonality in the Azure numbers in Q4. And obviously, last year, we didn’t see it because of COVID, but we also didn’t see it this year. Has something changed that has changed the seasonality of the business? And does that continue going forward? And then, as a follow-up question, Keith asked about OpEx efficiency overall, but I’d like to ask specifically on the cloud. Is there any reason that cloud OpEx shouldn’t continue to grow slower than revenue, obviously, on an annual basis, not a quarterly basis? Thank you. Amy Hood: Thanks, Mark, for the question. Let me cover your first one, which is the seasonality in the Azure business. In some ways, Mark, some of that seasonality frankly was because Azure has two fundamental components. It’s got a consumption model as well as a per-user model. The per-user model, which as you well know is far more aligned to our end-of-year and can be more aligned to our end-of-year rhythms. It also can have more quarterly volatility in terms of accounting, in terms of revenue recognition, the same topic we often talk about when it comes to Microsoft 365 in terms of more in-quarter recognition. What you’ve seen is that did historically represent a larger component of Azure, so added volatility to Q4. As we’ve seen our consumption businesses grow and grow consistently, thus far becoming a larger percentage of Azure, you do have more stability, Mark. And so, you start seeing less of that volatility that we’ve historically seen from Q3 to Q4. We still have some of it, as we talked about, but I think it’s an interesting observation and it’s a very good question. In terms of your comment on cloud revenue and OpEx, yes, I do believe that’s durable. We get a lot of focus. We’ll continue to invest. There’s lots of opportunity there, but the market certainly warrants it. Operator: Our next question is coming from the line of Brent Thill with Jefferies. Brent Thill: Amy, a lot of questions on margins, I’m curious if you think there is the ceiling in the near term on margins, or do you feel that you’ve got an elevated flight level, if you will, and we shouldn’t have to be worrying about that level of margins? Can you just give us any more color as it relates to how you’re thinking about that? Thank you. Amy Hood: Well, I think for FY22 on operating margins, which is really where I focus most of my thoughts, as I said, when you exclude the useful life change, I feel very good about margin improvement in FY22. But, what sits behind that, Keith is -- I mean, sorry, Brent, is this focus on the first thing I said, which is with every operating expense dollar we invest, are we continuing to invest in the highest growth places? If you continue to invest in high-growth places with differentiation that customers care about and you add value, you continue to see improvements in this area. From time to time, I’m sure there’ll be quarters where that isn’t the case, if we have some mix shift in hardware, et cetera. But in general, over a longer period of time, you’ve seen us focus on this. And so, if you remove a little of the noise and some of the useful life changes and look back a few years, I do think you’d see the biggest needle mover being where we invest the dollars as opposed to the overall amount of them, which should grow based on the opportunity. Operator: Our next question comes from the line of Karl Keirstead with UBS. Karl Keirstead: Thanks very much. Amy, thank you for giving more formal Azure guidance for the next quarter. That’s very helpful. So, if Azure is going to remain stable in constant currency, I guess at 45%, and you had indicated that EMS growth should moderate, effectively, you’re saying that the consumption piece of Azure might accelerate in the September quarter. So, I’m wondering if you could unpack that a little bit. Is this as simple as prior period commitments simple as prior period commitments ramping at an accelerated pace? I’d love to hear your thoughts. Thank you. Amy Hood: Thanks, Karl. I think, in general, you’ve got the right trajectory. And I do think it’s both things. You’ve heard me say, it’s both some of our core as well as premium SKUs. We’ve seen some nice execution. And I think Satya mentioned some of these differentiated places in the Azure stack, where I think we also can see some growth. Data services is a very good point where I feel like we’ve made a lot of progress, have a real differentiation, have seen some acceleration in the past couple of quarters. Operator: Our next question is coming from Mark Murphy with JP Morgan. Mark Moerdler: Satya, at the Ignite Conference a few months ago, you commented that cloud architectures have reached peak centralization. I’m wondering what developments are you seeing that inform your viewpoint. And Amy, do you sense uplift in some of those intelligent edge products such as Azure Stack or others contributing to the improvement in server products growth that we saw this quarter? Satya Nadella: Thanks so much for that question. A couple of things that are happening. One is that all up, even what we consider the cloud infrastructure is getting increasingly distributed. If you think about the approach we took to our data center architecture, the fact that we have more regions, is to meet, I would say, both the real-world needs for the computing architecture side but also the regulatory and data residency requirements. So, we feel we picked the right approach. And that’s paying dividends today just even in terms of our geographic coverage, our coverage of all of the regulatory requirements. Then, the second piece, of course, is distributed computing will remain distributed. And what we are seeing with edge is going to be the case where we will see more of both the old workloads with hybrid benefits and hybrid deployments as well as new workloads, right? So, if you take the AB InBev Digital Twin meets IoT type of scenario, that’s going to require a lot more compute close to their factories. And so, to me, those new scenarios -- or 5G, I mean, think about what AT&T is planning to do, which is a hybrid deployment in a completely new space where there is going to be compute that’s located to be able to take core network traffic and use cloud economics. So, that’s what we think of going forward, which is really compute will remain distributed, both because of their needs across geographies, regulation and the very nature of compute architecture. Amy Hood: And to the question you asked on how to think about the edge and where to see that in results, really, it shows up. This is one where I would focus on the overall server products and cloud services number, which I think, Mark, was at the heart of your question because through our purchasing vehicles, the most effective way to purchase for flexibility with and across the edge in the cloud is sometimes some of the on-prem licensing with hybrid rights. So, you do see that both in our Azure results but also depending on how it’s purchased and server KPI. Operator: Our next question comes from Brent Bracelin with Piper Sandler. Brent Bracelin: A question for you really around $10 million-plus contracts. You called out momentum this quarter and last quarter. My question is around the drivers of these large enterprise commitments. Is this driven by just the larger scope of deals, or are you seeing kind of broader attach rate across the whole breadth of Microsoft Cloud products? Thanks. Amy Hood: Thanks, Brent. Maybe, Satya, I’ll take this one first and if you want to add anything. Brent, unfortunately, I’m going to answer it’s everything, and let me talk about why I say that. When you see the size of the contracts increase, it’s about the entire scope of what’s offered under the Microsoft Cloud. We’re seeing both really strong renewals of our core contracts, really strong additions across Dynamics, Power Apps, Power Automate, M365, premium SKUs, security, compliance, voice, which, of course, increases those commitment sizes. And you’re seeing the addition of Azure commitments, which we often talk about as these multiyear longer-term contracts. And so, then you do, of course, see them just have longer duration on -- especially in the case of Azure. So, in many ways, what we focus on are the components that make up the larger contracts is each component being additive to selling the value that’s present across all of our pieces of the Microsoft Cloud. And this was a good execution quarter for us. You see it in the bookings number even more. When you have a declining expiry base and then bookings growth that’s that high you have to do all those things well. And that’s I think really what’s reflected ultimately and transactionally, meaning those larger $10 million-plus contracts being done. Operator: Our next question comes from Alex Zukin with Wolfe Research. Alex Zukin: I guess my main question maybe for Satya, you’ve taken -- you’ve noted the future of work having changed, and you talked about the fusion of Teams into both, the application stack, the operating system stack and really amongst the entire Microsoft portfolio. Is that driving -- given the acceleration you’re seeing in Dynamics, can you talk to the fact, is that driving larger deals, new bites at the apple, or how is that changing the landscape? And how do you think about that versus what your competitors are doing? Satya Nadella: Yes. That’s a great question. Thanks for that. Multiple things happening and both -- some of them are independent secular growth trends and they do reinforce each other. Let’s just take Dynamics. It’s probably one of the most exciting things we are seeing is that coming out of this pandemic, there is an absolute new chapter for a complete new suite all the way from whether it’s sales, to customer service, to marketing, to supply chain, or digital manufacturing, that’s all going to be re-implemented. So, there’s going to be a complete new cycle of business process automation that is going to be AI-first and collaboration-first. And that second part is where that intersection between Teams and Business Process or Dynamics comes through, because you do not want to have a system of record for anything, whether it is a customer or a part or a forecast that you don’t want to collaborate on, that you don’t want to communicate on. And by the way, the communications and the collaboration artifacts are part of the record. And that’s what I think that this new generation of software will enable. And so, you see it in two fronts. One is, Teams has become a platform, not just for Dynamics, even for Salesforce, for SAP, for Adobe, for ServiceNow. They’re all building great integrations into Teams and we’ll foster that. And Dynamics itself of course will integrate deeply with Teams and embed Teams or Azure Communication Services. So, when you think about our omnichannel customer service module, it doesn’t look like anything that -- from two years ago. It’s a completely rebuilt omnichannel customer service system, which has all the communication functionality built in. So, it’s a pretty exciting space. And it also speaks to a lot of the questions around where is the margin, how is it going to sort of evolve? I think tracking what’s happening with Power Platform, Dynamics and Teams, I think probably and its intersection to even some of our data layers in Azure is perhaps the best indication of some of our competitive differentiation at scale already. Operator: Our final question comes from the line of Keith Bachman with Bank of Montreal. Keith Bachman: Amy, I wanted to direct this to you and go back to margins for a second. Is there any comments or color that you could provide? I know you said you focused on the operating margin side, but on the trends that you anticipate this year in ‘22 around gross margins with or without the depreciation schedules. Part B is, on the last quarter call, you indicated that operating expenses might grow kind of mid-teens or low teens, I should say, in ‘22. I was wondering if you would want to update the comments on how we should be thinking about operating expense trends as we look at FY22. Thank you. Amy Hood: Thanks, Keith. When I think about your operating expense comments, no, I don’t have any update to that. I think if you think about our headcount growth at 12%, plus through the year, continuing to invest in some of the places where we saw savings through the year on COVID, I would expect that that is still a good placeholder for people as we work through the year. I mean, with the opportunity we see in the market, I think it supports that level. And given our execution, when we do invest, which leads me to margin, I feel very good about that. At the gross margin level, we’ll continue I feel very good always focused on, which is continuing across our cloud services to see improving margins. You’ll continue to see a mix shift to Azure, given the growth we expect there. And we’ll continue to see gross margin improvements across individual services that make up many of our components across the Company. So, in general, I feel like the gross margin trends are quite healthy heading into ‘22. Brett Iversen: Thanks, Keith. So, that wraps up the Q&A portion of today’s earnings call. Thank you for joining us today. And we look forward to speaking with all of you soon. Amy Hood: Thank you, everyone. Satya Nadella: Thank you. Operator: Ladies and gentlemen, this concludes today’s conference. We thank you for your participation, and you may disconnect your lines at this time.
Microsoft (MSFT) Coverage Initiated by H.C. Wainwright Amid AI and Cloud Services Growth
- H.C. Wainwright initiated coverage on Microsoft (NASDAQ:MSFT) with a Neutral rating, amidst growing traction in AI and cloud services.
- Wedbush raised its price target for Microsoft to $600, citing increased demand for AI services, with over 70% of Microsoft's customer base expected to adopt enterprise AI by 2028.
- Wells Fargo projects Microsoft's AI business to generate $100 billion in revenue, maintaining an "overweight" rating and increasing its price target to $585.
On June 25, 2025, H.C. Wainwright initiated coverage on Microsoft (NASDAQ:MSFT) with a Neutral rating, as reported by Benzinga. At the time, Microsoft's stock was priced at $491.69. This comes amid a broader context where Microsoft's AI and cloud services are gaining significant traction, as highlighted by Wedbush and Wells Fargo.
Wedbush has raised its price target for Microsoft to $600, up from $515, due to increased demand for AI services through Azure and Copilot. Analyst Dan Ives notes that AI is transforming Microsoft's cloud growth, with over 70% of its customer base expected to adopt enterprise AI by 2028. This optimism is reflected in Microsoft's inclusion on Wedbush's Best Ideas list.
Wells Fargo also shares a positive outlook, projecting Microsoft's AI business to generate $100 billion in revenue. Despite Microsoft's shares trading at historical highs, the AI sector is still in its early stages. Wells Fargo has maintained an "overweight" rating and increased its price target from $565 to $585, indicating confidence in Microsoft's growth potential.
Microsoft's current stock price is $490.21, showing a slight increase from the previous session. The stock has traded between $490.12 and $494.53 today, with a market cap of approximately $3.64 trillion. The trading volume is 7.43 million shares on the NASDAQ exchange, reflecting active investor interest.
Microsoft's capital spending is set to rise, with an expected $80 billion investment for fiscal 2025, projected to grow further in 2026. This investment supports the momentum in AI and cloud services, marking a pivotal time for the company as it continues to expand its enterprise offerings across various sectors.
Morgan Stanley Maintains "Overweight" Rating on Microsoft (NASDAQ:MSFT)
- Morgan Stanley reaffirms its "Overweight" rating for Microsoft (NASDAQ:MSFT), signaling confidence in its future performance despite competition.
- Microsoft's market capitalization slightly trails behind Nvidia's, with Nvidia now being the world's most valuable publicly traded company.
- The stock price of Microsoft shows a modest increase, reflecting investor interest and market volatility.
On June 4, 2025, Morgan Stanley reaffirmed its "Overweight" rating for Microsoft (NASDAQ:MSFT), indicating confidence in the company's future performance. At the time, Microsoft's stock was priced at $462.97. Microsoft, a leading technology company, is known for its software products, cloud services, and hardware. It competes with other tech giants like Apple, Google, and Amazon.
Despite the positive outlook from Morgan Stanley, Microsoft has recently been overtaken by Nvidia as the world's most valuable publicly traded company. Nvidia's market capitalization has reached $3.45 trillion, surpassing Microsoft's $3.44 trillion. This shift highlights the growing investor confidence in Nvidia, especially after its recent earnings call, as highlighted by Business Insider.
Microsoft's stock price reflects a slight increase of 0.22%, or $1.00, reaching $462.97. The stock has shown some volatility, with a daily range between $460.86 and $464.12. Over the past year, Microsoft's stock has fluctuated significantly, with a high of $468.35 and a low of $344.79, indicating a dynamic market environment.
The trading volume for Microsoft on the NASDAQ exchange is 15.72 million shares, suggesting active investor interest. Despite the competition from Nvidia, Microsoft's reaffirmed "Overweight" rating by Morgan Stanley suggests that analysts still see potential for growth and value in the company's stock.
Microsoft (MSFT) Receives "Overweight" Rating from Piper Sandler
On May 21, 2025, Piper Sandler updated their rating for Microsoft (NASDAQ:MSFT) to "Overweight," indicating a positive outlook on the stock. At the time, MSFT was priced at approximately $453.90. Piper Sandler's action of "hold" suggests a recommendation to maintain current positions. For more insights, Benzinga's article "Behind the Scenes of Microsoft's Latest Options Trends" provides further details.
In the Market Clubhouse Morning Memo, traders are advised to monitor Microsoft closely. The memo uses a proprietary formula that considers price, volume, and options flow, suggesting potential opportunities for breakouts or reversals. This aligns with Piper Sandler's "Overweight" rating, indicating a favorable outlook for MSFT.
Currently, MSFT is priced at $453.58, reflecting a slight decrease of 1.00% or $4.59. The stock has fluctuated between $451.84 and $457.78 during the trading day. Despite this volatility, the "Overweight" rating suggests confidence in the stock's potential for growth.
Microsoft's market capitalization stands at approximately $3.37 trillion, highlighting its significant presence in the market. With a trading volume of 9,844,911 shares on the NASDAQ, the stock remains actively traded. This activity supports the notion of potential market shifts, as highlighted in the Market Clubhouse Morning Memo.
Over the past year, MSFT has reached a high of $468.35 and a low of $344.79. This range demonstrates the stock's volatility, yet the "Overweight" rating from Piper Sandler suggests optimism for future performance. Traders are encouraged to stay alert and adjust strategies to maximize gains.
Microsoft Corporation's (NASDAQ: MSFT) Impressive Q3 Fiscal 2025 Results
- Microsoft's third-quarter fiscal 2025 results have exceeded expectations, driven by strong performance in its AI business and increased adoption of Copilot.
- The company's Azure cloud infrastructure unit has shown accelerating growth, contributing significantly to the positive earnings and revenue outcomes.
- A key highlight of the earnings report was the substantial 33% increase in cloud spending, significantly influenced by advancements in artificial intelligence (AI) infrastructure.
Microsoft Corporation (NASDAQ: MSFT) is a global technology giant known for its software products, cloud services, and hardware. The company competes with other tech leaders like Amazon and Google in the cloud computing space. On May 1, 2025, Piper Sandler adjusted Microsoft's stock rating to Neutral, maintaining a hold action with the stock priced at $429.69.
Microsoft's third-quarter fiscal 2025 results have exceeded expectations, driven by strong performance in its AI business and increased adoption of Copilot. The company's Azure cloud infrastructure unit has shown accelerating growth, contributing significantly to the positive earnings and revenue outcomes. This has led to a 9% surge in Microsoft shares, marking its best trading day in five years, as highlighted by CNBC.
The earnings report revealed a robust bottom line, with earnings per share reaching $3.46, surpassing the forecasted $3.22 by 7% and marking a 17% increase year-over-year. On the revenue front, Microsoft reported $70.07 billion, exceeding expectations by 2.2% and showing a 13% year-over-year growth. This impressive performance has effectively wiped out all the stock's losses since February 2025.
A key highlight of the earnings report was the substantial 33% increase in cloud spending, which had been a concern for investors due to a previous unexpected decline. Notably, 16% of this increase was attributed to advancements in artificial intelligence (AI) infrastructure. This strong performance in cloud spending has been a significant factor in the stock's recent recovery.
The current stock price of Microsoft is $429.78, reflecting an increase of 8.73% or $34.52. Today, the stock has fluctuated between a low of $428.22 and a high of $436.99. Over the past year, the stock has reached a high of $468.35 and a low of $344.79. Microsoft has a substantial market capitalization of approximately $3.19 trillion, with a trading volume of 34.43 million shares.
Microsoft Corporation's (NASDAQ: MSFT) Impressive Q3 Fiscal 2025 Results
- Microsoft's third-quarter fiscal 2025 results have exceeded expectations, driven by strong performance in its AI business and increased adoption of Copilot.
- The company's Azure cloud infrastructure unit has shown accelerating growth, contributing significantly to the positive earnings and revenue outcomes.
- A key highlight of the earnings report was the substantial 33% increase in cloud spending, significantly influenced by advancements in artificial intelligence (AI) infrastructure.
Microsoft Corporation (NASDAQ: MSFT) is a global technology giant known for its software products, cloud services, and hardware. The company competes with other tech leaders like Amazon and Google in the cloud computing space. On May 1, 2025, Piper Sandler adjusted Microsoft's stock rating to Neutral, maintaining a hold action with the stock priced at $429.69.
Microsoft's third-quarter fiscal 2025 results have exceeded expectations, driven by strong performance in its AI business and increased adoption of Copilot. The company's Azure cloud infrastructure unit has shown accelerating growth, contributing significantly to the positive earnings and revenue outcomes. This has led to a 9% surge in Microsoft shares, marking its best trading day in five years, as highlighted by CNBC.
The earnings report revealed a robust bottom line, with earnings per share reaching $3.46, surpassing the forecasted $3.22 by 7% and marking a 17% increase year-over-year. On the revenue front, Microsoft reported $70.07 billion, exceeding expectations by 2.2% and showing a 13% year-over-year growth. This impressive performance has effectively wiped out all the stock's losses since February 2025.
A key highlight of the earnings report was the substantial 33% increase in cloud spending, which had been a concern for investors due to a previous unexpected decline. Notably, 16% of this increase was attributed to advancements in artificial intelligence (AI) infrastructure. This strong performance in cloud spending has been a significant factor in the stock's recent recovery.
The current stock price of Microsoft is $429.78, reflecting an increase of 8.73% or $34.52. Today, the stock has fluctuated between a low of $428.22 and a high of $436.99. Over the past year, the stock has reached a high of $468.35 and a low of $344.79. Microsoft has a substantial market capitalization of approximately $3.19 trillion, with a trading volume of 34.43 million shares.
UBS Trims Microsoft Price Target to $480 as Data Center Buildout Slows
UBS reduced its price target on Microsoft (NASDAQ:MSFT) to $480 from $510 while maintaining a Buy rating, as the tech giant signals a shift in its data center investment strategy ahead of its upcoming earnings report on April 30.
Following Microsoft’s recent disclosure that it is scaling back or pausing some early-stage data center projects, UBS assessed the broader implications. The firm believes the changes are likely not tied to weakening AI demand but rather part of a recalibration of infrastructure planning. It expects Microsoft to reaffirm fiscal 2026 capital expenditure growth guidance—albeit at a slower pace than fiscal 2025.
The report also notes that any resulting capacity constraints, particularly those involving Microsoft’s AI partner OpenAI, could be mitigated through collaboration with other cloud providers such as Oracle. Despite the adjustment, UBS maintains a positive long-term outlook for Microsoft, citing its leadership in AI and cloud services.
UBS Trims Microsoft Price Target to $480 as Data Center Buildout Slows
UBS reduced its price target on Microsoft (NASDAQ:MSFT) to $480 from $510 while maintaining a Buy rating, as the tech giant signals a shift in its data center investment strategy ahead of its upcoming earnings report on April 30.
Following Microsoft’s recent disclosure that it is scaling back or pausing some early-stage data center projects, UBS assessed the broader implications. The firm believes the changes are likely not tied to weakening AI demand but rather part of a recalibration of infrastructure planning. It expects Microsoft to reaffirm fiscal 2026 capital expenditure growth guidance—albeit at a slower pace than fiscal 2025.
The report also notes that any resulting capacity constraints, particularly those involving Microsoft’s AI partner OpenAI, could be mitigated through collaboration with other cloud providers such as Oracle. Despite the adjustment, UBS maintains a positive long-term outlook for Microsoft, citing its leadership in AI and cloud services.
