Is Microsoft Merely A Follower In The Cloud Market?

Compared with Amazon.com, Inc. (NASDAQ: AMZN) and Google Inc (NASDAQ: GOOG), Microsoft Corporation (NASDAQ: MSFT) is just a follower, according to analysts at Citi Research. While there has been excitement over Microsoft's Azure and other cloud offerings, the analysts said that ultimately, Microsoft will be a price taker in the cloud – meaning that the company is particularly vulnerable to price declines.

For instance, Amazon Web Services operates at a negative operating margin and is 3-5x the current size of Azure. The analysts extrapolated that this means that Microsoft will experience medium- and long-term "headwinds" in the cloud.

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With this as the backdrop, Citi warned that Microsoft may announce "another round of negative numbers revisions" at or ahead of its first analyst meeting in 18 months. The analysts pegged FY17 EPS "meaningfully below the street" at $3.07 versus $3.24.

Microsoft was trading 0.5 percent lower to $40.75 in the pre-market session. Citi has a price target of $38 on the stock.