Cloud applications have gained immense popularity over the past year given the rapid digitization and tech integration across most industries. The U.S. software industry has contributed $1.90 trillion to total value-added GDP and $933 billion to direct value-added GDP in 2020, representing a 17.1% increase since 2018.
This surge in cloud adoption is expected to continue as companies adopt hybrid working models. Gartner forecasts the worldwide end-user spending on public cloud services to grow 23.1% year-over-year to $332.30 billion in 2021.
Microsoft Corporation (MSFT)
MSFT is one of the world’s largest software companies. It operates in three segments—Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
On June 30, MSFT formed a strategic alliance with AT&T Inc. (T), under which AT&T’s mobile network traffic is to be managed using Microsoft Azure technologies. The alliance also intends to provide MSFT access to AT&T’s technical expertise to develop MSFT’s telecom offering.
On June 24, MSFT introduced Windows 11, which is designed to provide its customers with a fresh perspective. The product launch demonstrates MSFT’s unprecedented ability to innovate and upgrade in response to modernization-driven market demand.
On June 2, MSFT entered a partnership with Morgan Stanley (MS) to accelerate the financial institution’s digital transformation. The companies are also set to develop and co-design new application infrastructure to innovate the financial services industry. The partnership with one of the biggest investment banking companies worldwide should help MSFT to scale its operations and financials substantially.
Micro Focus announced its collaboration with MSFT in May to facilitate digital transformation of state and local governments. This collaboration is likely to increase MSFT’s revenues substantially because federal agencies are investing heavily to digitize their operations.
MSFT’s revenues increased 19.1% year-over-year to $41.7 billion in its fiscal third quarter, ended March 31. Its income from continuing operations grew 31.4% from its year-ago value to $17.05 billion. MSFT’s net income came in at $15.46 billion, indicating a 43.8% rise year-over-year. The company’s EPS increased 45% year-over-year to $2.03.
The Street expects MSFT’s revenues to rise 19.1% year-over-year to $42.54 billion in the current quarter (ending September 2021). A $1.95 consensus EPS estimate for the current quarter indicates a 7.1% improvement year-over-year. The company has an impressive earnings surprise history as well; it beat the consensus EPS estimates in each of the trailing four quarters.
Shares of MSFT have gained 34.4% over the past year. The stock has gained 28.2% over the past six months to close yesterday’s trading session at $279.93.
It’s no surprise that MSFT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
MSFT has a B grade for Stability and Quality. Among the 131 stocks in the Software – Application industry, MSFT is ranked #19. To see additional POWR Ratings for Growth, Momentum, Value, and Sentiment, click here.
Adobe Inc. (ADBE)
ADBE is one of the largest and most diversified software companies in the world. It operates through three segments: Digital Media, Digital Experience, and Publishing. The company’s leading products include Adobe Creative Cloud, Adobe Document Cloud, and Adobe Experience Cloud.
On April 27, ADBE introduced the next generation of its industry-first Real-time Customer Data Platform (CDP) that is designed for first-party data and allows companies to provide relevant and personalized experience to their customers.
Also in April, ABDE collaborated with FedEx Corporation (FDX) to drive e-commerce innovation. The collaboration should be highly beneficial for ABDE, given the rising popularity of online shopping since last year.
ADBE’s revenue increased 22.6% year-over-year to $3.84 billion in its fiscal second quarter, ended June 4. Its operating income stood at $1.41 billion, up 38.4% from the same period last year. Its net income grew 1.5% from its year-ago value to $1.12 billion. The company’s EPS increased 2.2% year-over-year to $2.32. And its cash flow from operations rose 67.9% from the prior year quarter to a record $1.99 billion over this period.
Analysts expect ADBE’s revenues to increase 18.1% year-over-year to $4.04 billion in the next quarter, ending November 2021. Its EPS is expected to increase 9.6% year-over-year to $3.08 in the next quarter. Furthermore, the $3.01 consensus EPS estimate for the current quarter, ending August 31, 2021, indicates a 17.1% rise from the same period last year. ADBE surpassed the Street’s EPS estimates in each of the trailing four quarters.
ADBE has gained 21.1% year-to-date. The stock has gained 18.9% over the past month to close yesterday’s trading session at $605.77.
ADBE has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. ADBE has an A grade for Quality and Sentiment. It is ranked #21 in the Software – Application industry. Click here to view additional ADBE ratings for Growth, Momentum, Value, and Stability.
Salesforce.com, Inc. (CRM)
CRM provides cloud enterprise software, with a focus on customer relationship management. On June 1, CRM was named as a Leader in the 2021 Gartner Magic Quadrant for Multichannel Marketing Hubs, making it a highly regarded company in the market.
On June 23, CRM introduced the next generation of the Salesforce platform, which includes a powerful set of tools and services. Amid the rising need for innovation, this launch should further strengthen CRM’s market position.
Also in June, CRM unveiled its new technology to expand its financial services offering for corporate and investment banking. This demonstrates CRM’s technological prowess. And on June 2, CRM introduced two new digital 360 innovations—Marketing Cloud 360 and Commerce Cloud 360. Given the rising demand for cloud applications globally, and CRM’s immense goodwill, its latest software solutions are expected to be a big hit.
CRM’s revenues increased 22.6% year-over-year to $5.96 billion in its fiscal first quarter, ended April 30. Its income from operations grew 352.9% from its year-ago value to $354 million. CRM’s net income came in at $469 million, indicating a 373.7% rise year-over-year. The company’s EPS increased 354.5% year-over-year to $0.50.
The Street expects CRM’s revenues to increase 22.3% year-over-year to $26 billion in the current year. The company’s revenues and EPS are expected to increase 19.5% and 13.1%, respectively, year-over-year to $31.07 billion and $4.31 next year. Shares of CRM have gained 26.5% over the past year, and 11.6% year-to-date.
CRM has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. CRM also has a B grade for Sentiment and Quality. It is ranked #25 in the Software – Application industry. To see more of CRM’s component grades, click here.
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MSFT shares fell $3.93 (-1.40%) in premarket trading Thursday. Year-to-date, MSFT has gained 24.68%, versus a 15.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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