Microsoft Corporation (NASDAQ:MSFT) Information Technology - Software | Reports October 20, After Market Closes
Key Takeaways
- The Estimize consensus is calling for earnings per share of 71 cents on $21.77 billion in revenue, 3 cents higher than Wall Street on the bottom line and $230 million on the top
- Microsoft’s focus has shifted away from its waning personal computing business toward high growth cloud computing
- Microsoft, along with Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL), are largely regarded as the top-3 cloud computing providers
Microsoft ties will always be to PC computing and the operating system, but lately it's cloud computing that has carried growth. In the fourth quarter, revenue in the intelligence cloud grew 7% to $6.7 billion, while personal computing declined 4%. Productivity and business services like Office jumped 5% thanks to its move to the cloud from a native desktop program. This ongoing trend toward cloud processes, coupled with additional insights on integrating LinkedIn (NYSE:LNKD), will garner the most attention when it reports.
Analysts at Estimize are calling for earnings per share of of 71 cents, reflecting a 4% climb from the same period last year. That estimate has jumped 4% since MSFT’s most recent report in July. Revenue for the period is expected to rise 1% to $21.77 billion, marking a slowdown from the previous two quarters. Shares have traded sideways this year and historically continue to do so through the print.
Microsoft continues to face a delicate balancing act between its booming cloud business and struggling personal computing. New revenue sources have replaced old ones as PC sales wane are phased out. Personal computing declined 4% in the fourth quarter on declines in Surface and Phone sales. Xbox Live users and ad revenue were the lone bright spots in the sector, both of which jumped double digits from a year earlier. Needless to say, cloud computing has far outpaced every other sector. Azure (NYSE:AZRE) and Salesforce.com (NYSE:CRM) grew 102% and will be the biggest benefactors from the LinkedIn purchase. Analysts expect these trends to continue into the future, as the cloud slowly replace its legacy business.
Beyond weak PC sales, there remains a handful of macroeconomic trends pressuring the industry. Currency headwinds, uncertainty in Europe and increasing competition pose a threat to a majority of the technology. The cloud space is now cluttered with hundreds of companies that want a piece of this rapidly growing market. Microsoft is still a few steps behind Amazon but is at least recognized as a dominant presence in the space. Meanwhile, currency headwinds predicated on Brexit uncertainty will continue to take their toll on European sales for the foreseeable future. If Microsoft can meet expectations this quarter, it will be a true testament to its market power in the cloud computing space.
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