A rosy research note helped boost Microsoft shares Monday morning, signaling what bulls hope will be a resurgence in the stock which, over the past few weeks, has hit a bit of a swoon.
The note from Bank of America’s BAC 1.44% Merrill Lynch unit, reasserted its buy rating on Microsoft MSFT 1.48% stock with a $65 per share price target. Since Microsoft has been trading in the mid-$50 range for the past year or so, that $65 figure implies a “significant upside” to the share price, according to a 24/7 Wall St. report based on the research note.
Microsoft shares opened at $50 Monday and hit $50.75 before closing at $50.61. It’s not $65, but it may be a start in that direction.
Merrill Lynch also downplayed slower Windows Server revenue growth, which worried other Microsoft watchers after last week’s earnings call. Instead, the company’s report focused on what it sees as possibly stronger revenue and gross profit in Microsoft’s overall “Intelligent Cloud” business.
The Intelligent Cloud category lumps together software that runs on customers’ own servers, including the Windows Server operating system along with Microsoft’s Azure public cloud business. Azure aggregates a ton of computer servers, storage, and networking that customers can rent and pay for as needed. Microsoft Azure runs in Microsoft owned-and-operated data centers around the world.
支持者还盼望微软的Azure能追随Amazon Web Services（AWS），也就是亚马逊公共云业务的成长路线。上季度，AWS的利润率良好，达到23.5%。然而就在一年前左右，大多数观察人士还认为AWS是亚马逊亏损最大的业务，而今AWS显然已经是亚马逊最赚钱的业务之一。
Windows 10带来的升级浪潮可能带来今后一年微软的另一个亮点。在上个月的微软Build 2016大会上，微软宣布Windows 10用户已经超过2.7亿。可能估算数字过于乐观了点，但2015年7月上市的Windows 10的用户数确实相当可观。
The fact that Intelligent Cloud profit dropped 14% to $2.19 billion for the third quarter compared to the year-ago period spooked some last week, but apparently didn’t faze Merrill Lynch number crunchers who think revenue and profit growth for that category may well accelerate faster than anyone anticipates going forward.
Microsoft boosters also hope that Azure follows the trajectory of Amazon Web Services, Amazon.com’s AMZN 3.70% public cloud business. AWS posted a healthy profit margin of 23.5% for its most recent quarter. Up until the last year or so, most observers considered AWS a loss-leader for its parent company. Now AWS appears to be one of the company’s most profitable businesses.
From the Merrill report, as quoted in 24/7 Wall St.:
With Azure currently at a -10 to -20% incremental gross margin many investors see it as a foregone conclusion that margin improvement will likely be much farther out in the future. However, we believe that incremental gross margins could reach +5 to +10% in fiscal 2017 with an incremental $1.6 billion in revenue to roughly $4.1 billion ending fiscal 2017. While this seems like a large improvement, we note that AWS segment operating margins were roughly 14% when it was at $4.6 billion in size, and in Microsoft’s case, it has frontloaded a significant amount of investment (reaching 22 availability zones worldwide in just a few years) and should be able to achieve significant leverage as the service continues to scale off.
Another bright spot for Microsoft in the upcoming year could come from the Windows 10 upgrade wave. At its Build conference last month, Microsoft claimed that more than 270 million Windows 10 users. Even if that is an overly optimistic estimate, that’s probably still a ton of users for a product that first surfaced in July, 2015.
In any case, Microsoft has established itself as a strong (although still distant) number two player to Amazon in public cloud computing. But it also still makes crazy money off its Windows-and-Office cash cows. As an example, the Microsoft business unit that includes Office saw its sales down slightly year over year but still logged $6.3 billion in revenue in the most recent quarter. Similarly, the Windows unit saw sales off 17% but still ended up with $9.4 billion.
These are not numbers to sneeze at.