Microsoft Cloud Sales Slow In Q4: What Lies Ahead For ETFs?

After the closing bell on Wednesday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with better-than-expected fiscal fourth-quarter 2020 results. It continued a long track of beating earnings estimate and topped the revenue estimate. Microsoft has benefited from the work-from-home and learn-at-home trends during the COVID-19 pandemic.

Earnings per share came in at $1.46, outpacing the Zacks Consensus Estimate by 8 cents and improving 7% from the year-ago quarter. Investors should note that Microsoft has not missed on quarterly earnings since third-quarter fiscal 2016. Revenues rose 13% year over year to $38 billion, topping the consensus estimate of $36.59 billion.

Despite gaining from the stay-at-home order, growth of the flagship Azure computing platform slowed to 47% last quarter from 59% in fiscal third quarter, leading to investors’ disappointment. Sales of Office 365 Commercial and Dynamic 365 climbed 19% and 38%, respectively.

Microsoft expects revenues of $35.61 billion for fiscal first quarter, representing 8% year over year growth. The Zacks Consensus Estimate is pegged at $35.90 for revenues.

Following the earnings announcement, shares of Microsoft fell as much as 3% in after-market hours on slowing Azure sales. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a Growth Score of B. It falls under a top-ranked Zacks industry (top 43%), which suggests its outperformance in the days ahead.

ETFs in Focus

Investors seeking to invest in this software leader could tap the beaten-down price through ETFs with a lower level of risk. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.

Select Sector SPDR Technology ETF (XLK - Free Report)

This most-popular technology ETF follows the Technology Select Sector Index and has $32.8 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 16.8 million shares a day on average. It holds about 71 securities in its basket, with Microsoft occupying the top position at 21.7%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

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