As can be seen from the graph above, Microsoft’s share price has been on a tear since Satya Nadella took over the leadership of the company, but how long can that continue?
According to analysts at Evercore ISI, there is still plenty of steam left in the engine, and Microsoft could “reasonably” arrive at a $1 trillion market cap by 2020, if not sooner.
Unsurprisingly they do not base this projection on the growth of Windows or Xbox, but on Microsoft’s now central Cloud computing focus.
They were particularly impressed with the new Microsoft 365 offering, which bundles a number of Microsoft applications to businesses, seeing it as a key growth driver, and expected Office penetration to increase more in business due to Microsoft’s push to front-line workers and the education market. Microsoft reported some new success and growth in that area recently.
“While we believe best in breed offerings such as Okta for IAM, Tableau /Qlik for BI/Analytics, Box /Dropbox for collaboration, or VMware AirWatch for EMM will maintain their respective leadership positions, on the margin, we expect Microsoft 365 to win incremental share over time due to its ease of integration with the broader Office productivity platform and enterprise customers’ proclivity to buy a ‘suite’ of products vs. best of breed solutions, especially in the SMB market where IT resources are scarce,” Evercore analysts Kirk Materne, Fenn Hoffman, Tom Mao and Daniel Greenfield wrote.
The expected Office 365 commercial business to generate $26.86 billion in revenue in the company’s 2021 fiscal year,
They also expected further growth in Azure, and pointed to Azure Stack as a differentiating factor and expected 2021 fiscal year it could register $22.19 billion in revenue.
“As Azure’s revenue scales across a more fixed base of infrastructure investments, we believe Azure has the potential to drive meaningful operating leverage and FCF over the next 4 years and should ultimately reach 30%+ op. margins (vs. AWS at 25% today), to become one of Microsoft’s core earnings and FCF drivers over the next decade,” the analysts wrote.
Evercore ISI raised their Microsoft share target price from $93 to $106.
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