Microsoft May Be Poised To Deliver Highest Top-line Growth In 2 Years

Expectations for Microsoft Corporation MSFT heading into earnings are high. According to Pacific Crest's Brent Bracelin, Microsoft is expected to deliver its highest revenue growth in two years for three primary reasons.

1. Commercial Cloud

Bracelin estimates Microsoft's commercial cloud business will show a year-over-year growth rate of at least 40 percent in the quarter and exceed an annual run-rate of $14.3 billion.

While the gross margin rate for the cloud segment is based on the mix of deal sizes, the analyst remains confident it will be in the high-40 percent range even when factoring in price cuts at Azure. In fact, Microsoft is "comfortably" on pace to hit its 2018 $20 billion revenue target and within the next two years cloud revenue will represent 20 percent of total sales, up from just 5 percent in 2015.

2. Windows 10 Momentum

Bracelin expects Windows OEM licensing to grow for the second consecutive quarter and rise 3 percent year-over-year to $2.39 billion. The analyst cited IDC data, which showed that PC shipments returned to growth during the first quarter after a five-year pause.

3. LinkedIn Acquisition

Finally, Bracelin noted Microsoft realized a full-quarter benefit from the LinkedIn acquisition, which could improve overall revenue growth by 400 basis points from a year ago.

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