Microsoft expected to hit $20 billion annualized cloud run-rate goal in earnings today

Microsoft will deliver its FY Q1 2018 earnings report today at 2:30 PM – PT (around 6 hours from now) and according to analysts the company will be hitting it out of the park, and in particular reaching their goal declared in 2015 of $20 billion annualized run-rate for their cloud business.

“We have been impressed by solid execution and strong customer adoption of Microsoft’s cloud applications and platforms,” KeyBanc analyst Brent Bracelin wrote. “Reaching $20 billion would imply the commercial cloud mix could cross over 20% of revenue for the first time in the first quarter of fiscal 2018, up from 5% in early 2015. … Similar to the multiyear transition at Adobe Systems Inc.(ADBE) , we still view Microsoft in the early innings of cloud migration.”

Analysts expect Microsoft’s cloud businesses grew as much as 45% YoY in FY Q1 2018, with margins above 50%, according to a Stifel research note, and may be enough to justify the company’s new $600 billion market cap, not seen since the dot-com era. Microsoft has been focussing on deep-pocketed clients in industries such as oil and gas, recently claiming  Haliburton Co.(HAL) as a customer.

Analyst Brad Reback from Stifel said they expected “accelerating operating profit and free-cash-flow generation in coming quarters,” due to strong cloud sales.

“Free-cash-flow margins have improved substantially over the past couple of years to exceed 32% last year,” Bracelin wrote in the KeyBanc note. “Assuming further free-cash-flow margin expansion to 34% to 36% within four years, we estimate free cash flow could expand to $6 per share from $4 in fiscal 2017.”

RBC’s Ross MacMillan called Microsoft is the most attractive “megacap idea in software” at the moment and rated the stock outperform with an $85 price target.

Microsoft is expected to report $0.72 earnings per share, according to FactSet.

Source: MarketWatch.com

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