Analyst goes inside Microsoft's Q1 'home run' earnings

Dan Ives, senior equity analyst at Wedbush, discusses Microsoft's stellar quarter and 'booming' revenue.

Video transcript

SEANA SMITH: Microsoft shares, they are in focus here, following the company's earnings report just a few minutes ago. You can see shares up just around 1%. Earnings per share coming in at $2.27 adjusted. That was better than what the Street was expecting. Revenue just over 45 billion is about a 22% jump from what we saw a year ago.

We know that Microsoft's Intelligent Cloud segment, that was a huge focus here for investors. Revenue in that division coming in just around 31%-- or excuse me, showing 31% year over year growth. And taking a look at that number here, the revenue Intelligent Cloud coming in at 16.96 billion.

We want to bring in Dan Ives. He's Wedbush's senior equity analyst for a little bit more on this. And Dan, just taking a look at not much of a reaction in shares. You can see the stock up just around 1%. But what do you think of these results?

DAN IVES: This was a cloud home run. I mean, if you look at the Azure number, whispers were about 46%-47% growth, came in at 50%, really beat across the board. I expect strong guidance on the call. I think this is just more fuel in the engine to drive this stock higher. It just shows Nadella, in this cloud arms race, is continuing to gain share.

ADAM SHAPIRO: Dan, as we look at the report, I checked something on the Yahoo page that the stock is up year to date 40%. So if an investor is thinking, OK, now I'm going to jump in, would you have them focus just on the fact that they seem to be hitting the home run, as you say, when it comes to Azure? Or should they be looking more at where the Xbox falls into the personal computing sector? And can they expect this kind of growth in the next two or three quarters?

DAN IVES: Yeah, this is all about the cloud transformation. I mean, they've turned into a cloud behemoth at Microsoft. What Nadella has done is a big part of the rerating and the story. I mean, this is a $2 trillion market that's still in the third inning of playing out.

On the cloud transformation, I think that's how you get a stock with a four in front of it. Everything else, I kind of view as gravy. The Xbox, I mean, fundamentally, that's really noise to the story right now. And if you look at these results and guidance, as we've seen over the last few years, I think 24 hours from now, a week from now, this is a stock on its way to 400.

SEANA SMITH: Dan, I know you're going to say this is just a sideshow here. But bringing up its PC business, because of course, it has implications here just in terms of the chip shortage and how significantly that is hitting Microsoft. Is this something that investors just simply aren't worried about, given the outperformance of what you're talking about of what we're seeing in cloud?

DAN IVES: Look, it's a great point that you bring up. And our thought going into earnings is that when the New York City cab driver is talking about a chip shortage, it's out there. And I think investors are kind of looking through that dynamic. And also, understand it's transitory. But also, this is a cloud story. I mean, fundamentally it's our best cloud play.

I think it speaks to what you're seeing in terms of the secular demand, digital transformation. And right now, Nadella has the golden touch. And that's continuing to actually accelerate, not slow down.

ADAM SHAPIRO: Dan, I'm curious. There are the stories about Russian hackers targeting Microsoft and Azure's Cloud Services. Could that pose a threat going forward, because it seems to be a daily thing that Microsoft is having to deal with?

DAN IVES: Yeah, Microsoft is obviously caught in the middle. I mean, we saw it with the SolarWinds attack a year ago. But I think this just shows more and more companies, governments moving to the cloud. And tangentially, that's a massive beneficiary for cybersecurity.

Companies like Zscaler, Tenable, Crowdstrike, among others-- and I think Microsoft is going to further and further be entrenched on cybersecurity. And I call it a one-two punch in terms of what you're seeing in cloud and cyber. I don't view those hacks as really stopping the cloud party here. But it just shows more cautionary, need to have software in there to protect from the bad guys.

SEANA SMITH: Dan, what's the number one question that you want to hear answered on the call tonight?

DAN IVES: I mean, look, I think the biggest question is about what they're seeing in terms of the acceleration in this cloud growth story. Go back to the last six months. The haters will say that this was going to be a decelerating cloud because of a COVID pull-forward. Instead, it's the opposite.

So given more clarity around what they're seeing from enterprises, that's going to be the key. And that's why I think, coming off the call, this is just combined with what I believe is going to be beatable guidance. I think that is going to be front and center for investors.

ADAM SHAPIRO: What's the key question the analysts are going to ask them when that call begins?

DAN IVES: Look, I think the key question they'll really ask is-- because it's not just for Microsoft. It's about the broader cloud story in terms of what's going on because this is not just about Microsoft. I mean, tangentially this is bullish for Salesforce.com, Oracle, DocuSign, cybersecurity. I think that's really the tea leaves that everyone wants to see. But I think this is just another sort of trophy case report for Nadella and Redmond, as we've seen in these numbers.

SEANA SMITH: Dan Ives, always great to get you on here with your instant reaction. Again, Microsoft shares moving to the upside. A lot of that has to do with the strong numbers from its Azure and its cloud services that Dan has been talking about. Growth there just around 50%, better than what the Street was expecting. So certainly a number-- or certainly a stock to keep in mind as we turn our focus to tomorrow's opening bell.