Pacific Crest Has 'Increased Confidence' In Microsoft's Revenue Outlook

• The most recent reseller channel checks indicate that Microsoft is positioned for a strong quarter.
• Relative strength in Azure and Office 365 have laid the groundwork for a revenue beat from Microsoft.
• Pacific Crest is remains bullish on Microsoft’s stock.

Pacific Crest analyst Brendan Barnicle recently spoke to 20 Microsoft Corporation (NASDAQ: MSFT) U.S. and U.K. retailers to gauge the strength of the company’s quarter. In a new report, Barnicle discusses his findings and why he believes Microsoft is on track from a strong quarter.

Finishing Strong

With only two weeks left in Microsoft’s fiscal Q1, the majority of the resellers that Barnicle spoke with reported in-line numbers, with some even reporting modest upside.

The strong quarter has been led by solid adoption of Office 365, particularly in the UK. Barnicle notes that the program’s low cost was a primary driver of adoption.

In addition, Azure activity also seems to be picking up compared to previous quarters. “Customers are also recognizing that Microsoft offers the best option for hybrid clouds,” Barnicle reports.

Windows 10 Not A Factor

The report notes that Windows 10 adoption has not made much impact on resellers in the quarter, but that trend is not surprising. Windows 10 adoption will likely have a much greater impact on PC retailers than resellers. Most customers simply upgrade Windows on their own, and resellers typically deal more with Office than Windows.

Outlook

Pacific Crest is now calling for above-consensus revenue of $21.15 billion from Microsoft this quarter. “Based on the channel feedback and out NDR with Microsoft last week, we have increased confidence that Microsoft can post revenue upside to FQ1,” Barnicle explains.

Pacific Crest has an Overweight rating on Microsoft and a $55 target for the stock.

Disclosure: the author holds no position in the stocks mentioned.