Cloud Could Add $15 Billion to Microsoft Profits
After a lost decade following the bursting of the dot-com bubble, @Microsoft Corporation (Nasdaq: MSFT) has once again found its stride thanks to its booming cloud services business. Analysts now say years of heavy investments have Microsoft in the early stages of a long-term cloud growth story that will jump-start earnings, revenue and MSFT stock. According to @Bank of America analyst @KashRangan, Microsoft’s commercial cloud gross margins should expand from about 55 percent to at least 65 percent in coming years, generating tremendous cash flow for the company. [See: 8 Ways to Build a Low-Cost Portfolio for Social Change.] “Our long-term thesis is that the cloud business has an incremental tailwind of $10 billion to $15 billion in gross profits over the next three years,” Rangan says. He estimates that every additional $1 billion in gross profits will add 10 cents to Microsoft’s earnings per share. Bank of America estimates Microsoft’s cloud business could ultimately have a total addressable market of $50 billion. Assuming a 60 percent long-term gross margin, Rangan says Microsoft could add between $3 and $4 in EPS by 2025 from its cloud business alone.