Microsoft Earnings: What to Watch

July 19, 2018 5:30 a.m. ET

Microsoft Corp. is scheduled to report fiscal fourth-quarter earnings after the market closes Thursday. Here’s what to expect.

EARNINGS: Analysts surveyed by S&P Global Market Intelligence expect Microsoft to report earnings of $1.08 a share. Microsoft no longer reports adjusted figures, reflecting accounting changes it adopted at the start of the fiscal year.

REVENUE: Analysts expect revenue of $29.23 billion, up from $25.61 billion a year earlier. The year-ago figure reflects the new accounting standard.

WHAT TO WATCH:

HELP FROM HYBRID: Microsoft has seen its fortunes climb in recent years from its growing cloud-computing business, and a big piece of its success comes from so-called hybrid cloud sales. That’s a business in which customers mix web-based, on-demand services with software running on servers in their own data centers. That has helped Microsoft to sell to existing customers already running its software on their servers, a pitch rivals that don’t have a legacy software business can’t make. “Hybrid cloud scenarios continue to resonate with customers and we remain quite bullish on Microsoft’s differentiated positioning,” Stifel Nicolaus & Co. analyst Brad Reback wrote in a recent research note. He expects revenue from server products and cloud services, the Microsoft reporting bucket that includes hybrid-cloud business, to have grown “in the high teens” in the quarter. Microsoft doesn’t disclose revenue, only percent change, for that category.

AZURE AND OFFICE: The engines of Microsoft recent growth have been its Azure cloud-computing services and its Office 365 online-productivity service for businesses. Analysts expect them to have continued to fuel last quarter’s results. RBC Capital Markets analyst Ross MacMillan estimated that the Azure business grew 92% in the quarter, while commercial Office 365 gained 36%. He sees potential for them to drive even greater gains for the company in the coming quarters as they become bigger parts of Microsoft’s overall operations. “As these businesses grow within the mix and as margins improve (especially in Azure), we expect revenue and gross profit growth to accelerate,” Mr. MacMillan wrote in a recent research note.

WINDOWS: In March, Microsoft split the engineering group that develops products under the Windows banner among two separate divisions, downgrading Windows’ role in the increasingly cloud-focused company as personal computer shipments have shrunk. But the last quarter saw the strongest showing of PC shipments in six years, according to market-research firms Gartner Inc. and International Data Corp. A key reason: Corporate buyers upgrading PCs to Windows 10 before support for Windows 7, which many still use, expires in January 2020. Credit Suisse analyst Brad Zelnick expects revenue in Microsoft’s More Personal Computing segment, which includes Windows, to grow 14% to $10.5 billion.

GITHUB: Microsoft announced plans to buy coding-collaboration siteGitHub Inc. for $7.5 billion in stock last month. The deal hasn’t closed. Morgan Stanley analyst Keith Weiss isn’t counting on the company to provide much detail about the acquisition in its earnings report or on the call with financial analysts. When the deal does close, it will likely add about $450 million in amortization expense, which should lead to roughly five-cents-a-share dilution in fiscal 2019, Mr. Weiss wrote in a recent note.

Microsoft Looks Set to Beat Earnings Expectations Again

Oct. 23, 2018 7:30 a.m. ET

If history is any indication, analysts are understandably bullish about Microsoft’s first-quarter earnings on Wednesday—especially in the wake of its drubbing during tech’s big selloff earlier this month.

Microsoft (MSFT) has beaten analysts’ revenue estimates 19 of the last 20 quarters, and it is expected to report earnings of 96 cents per share on revenue of $27.88 billion, each up 14% from a year ago, according to FactSet.

Bank of America Merrill Lynch analyst Kash Rangan said in a note Monday that he expects Microsoft to beat expectations on both revenue and earnings per share, driven by strength in cloud computing and more. He raised his price target to $136 from $134, and maintained a Buy recommendation.

The company’s shift to cloud computing is “a major secular trend that is significantly benefiting [Microsoft] in the field as a key tailwind and should continue its momentum” heading into fiscal year 2019, Daniel Ives, managing director of equity research at Wedbush Securities, said in a note Friday initiating its coverage of Microsoft. He has an Outperform rating and price target of $140 on the stock. Ives expects Microsoft to join Apple (AAPL) and Amazon (AMZN) in the $1 trillion club within six months.

Credit Suisse analyst Brad Zelnick summed up the sentiment in another note Monday that concluded Microsoft’s burgeoning cloud business and Microsoft 365 products have greatly diversified its product portfolio to complement “strong commercial PC demand.”

In its previous quarter, Microsoft reported that revenue for its Azure cloud service rose 89% year-over-year, one of several factors that contributed to the first $100 billion year in revenue for the 43-year-old company.

Microsoft earnings: How to look for a clue about a cloud downturn

Jan 29, 2019

The biggest drama in tech earnings so far this season is the possibility that the cloud boom is going bust, especially after Intel Corp. revealed disappointing data center sales last week.

For Microsoft Corp., though, the downturn that is expected would likely cause little effect. Providers of cloud-computing power have shown no effects yet, as any downturn would be in its early stages and only affecting equipment providers far down the food chain. When Microsoft reports fiscal second-quarter earnings Wednesday afternoon, though, there could be at least one data point to test the theory.

Raymond James analysts pointed out last week that capital expenditure plans from Microsoft are typically “highly correlated” with Intel’s outlook. For that reason, analysts at that bank expect Microsoft’s capex spending to be flat this calendar year, while consensus estimates call for an increase of 23% in this fiscal year and 10% in the 2020 fiscal year.

If the trend holds and Microsoft does pull back on its spending, it could back up Intel’s commentary that the entire data-center equipment market is slowing down. However, if Microsoft says that it expects to increase spending still, it could signal that the company is moving away from its “Wintel” partner in the cloud and looking at other chip vendors, which would just be an Intel problem and throw a small wrench in the talk of a cloud bust.

Earnings: Analysts on average expect Microsoft to report earnings of $1.09 a share, according to FactSet, up from 96 cents a share a year ago after adjusting for effects of tax changes in the year-ago quarter. According to Estimize the average projection is for $1.13 a share in earnings.

Revenue: On average, analysts expect revenue of $32.44 billion, according to FactSet, up from $28.92 billion a year ago. Estimize contributors project sales of $32.62 billion.

Microsoft breaks its revenue into three segments:

- “Productivity and Business Solutions,” which is mostly cloud software;
- “Intelligent Cloud,” which includes Azure, server sales and some other products; and
- “More Personal Computing,” largely the legacy Windows and Xbox businesses.

Analysts on average expect $10.09 billion in Productivity and Business Solutions, $9.28 billion in Intelligent Cloud, and $13.08 billion in PCs.

Revenue in Productivity and Business Processes was $10.1 billion and increased 13% (up 13% in constant currency), with the following business highlights:

• · Office Commercial products and cloud services revenue increased 11% (up 11% in constant currency) driven by Office 365 Commercial revenue growth of 34% (up 33% in constant currency)
• · Office Consumer products and cloud services revenue increased 1% (up 2% in constant currency) with growth in Office 365 Consumer subscribers to 33.3 million
• · LinkedIn revenue increased 29% (up 30% in constant currency) with record levels of engagement highlighted by LinkedIn sessions growth of 30%
• · Dynamics products and cloud services revenue increased 17% (up 17% in constant currency) driven by Dynamics 365 revenue growth of 51% (up 50% in constant currency)

Revenue in Intelligent Cloud was $9.4 billion and increased 20% (up 21% in constant currency), with the following business highlights:

• · Server products and cloud services revenue increased 24% (up 24% in constant currency) driven by Azure revenue growth of 76% (up 76% in constant currency)
• · Enterprise Services revenue increased 6% (up 7% in constant currency)

Revenue in More Personal Computing was $13.0 billion and increased 7% (up 7% in constant currency), with the following business highlights:

• · Windows OEM revenue declined 5% (down 5% in constant currency)
• · Windows Commercial products and cloud services revenue increased 13% (up 14% in constant currency)
• · Surface revenue increased 39% (up 41% in constant currency)
• · Gaming revenue increased 8% (up 9% in constant currency) with Xbox software and services revenue growth of 31% (up 32% in constant currency)
• · Search advertising revenue excluding traffic acquisition costs increased 14% (up 14% in constant currency)

Microsoft dips on revenue miss
.

• Microsoft's revenue was slightly below consensus as revenue from Windows device makers fell.
• Azure's revenue growth was flat sequentially at 76 percent.

While Microsoft again declined to disclose exact revenue for the Azure cloud business that's contributed to the company's success in recent years, Microsoft did say Azure grew 76 percent, which is flat sequentially from the previous quarter.

Given comments from Intel, Juniper and other companies related to spending on infrastructure, Microsoft investors had reason to be concerned about what that means for Azure, said Brent Bracelin, an analyst at KeyBanc Capital Markets who has a "buy" rating on the stock. Bracelin had predicted around 74 percent growth, or $2.85 billion in revenue.

Microsoft said it collected $9 billion in revenue from its Commercial Cloud category, which includes the Azure public cloud, commercial subscriptions to the Office 365 productivity software bundle, the Enterprise Mobility and Security products and commercial LinkedIn services.

. . .

And the Intelligent Cloud Segment, which includes Azure, enterprise services, SQL Server and Windows Server, posted revenue of $9.38 billion, beating the $9.28 billion estimate. In the past few years Microsoft's capital expenditures -- to support Azure and other products -- has risen sequentially from the fiscal first quarter to the fiscal second quarter, but this time it fell sequentially, going from $4.3 billion to $3.9 billion.

Microsoft Corp. and Oracle Corp. on Wednesday announced a cloud interoperability partnership enabling customers to migrate and run mission-critical enterprise workloads across Microsoft Azure and Oracle Cloud. Enterprises can now seamlessly connect Azure services, like Analytics and AI, to Oracle Cloud services, like Autonomous Database. By enabling customers to run one part of a workload within Azure and another part of the same workload within the Oracle Cloud, the partnership delivers a highly optimized, best-of-both-clouds experience. Taken together, Azure and Oracle Cloud offer customers a one-stop shop for all the cloud services and applications they need to run their entire business.