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By Stephen Nellis 
1h ago
When Microsoft Corp reports earnings on Wednesday, analysts expect some areas of its business to be affected by the new coronavirus pandemic, with lower-than-expected sales in areas such as advertising on its LinkedIn social network.
But analysts also expect an increase in the use of cloud computing services and collaboration tools from Microsoft, such as the Teams app “as more companies are forced to go into the cloud” on orders to stay on. home, as Macquarie Capital analysts Sarah Hindlian-Bowler and Calvin Patel wrote in a research note. Analysts expect those increases to offset some of the falls and position Microsoft as well or better than its peers as the full economic impact of the pandemic becomes clearer.
Analysts expect Redmond, Washington-based Microsoft to report $ 33.63 billion in revenue and profit of $ 1.27 a share for its fiscal third quarter, up from $ 30.5 billion and $ 1.14 a share a year earlier, according to IBES data from Refinitiv as of April 27. The main drivers will continue to be Microsoft’s Azure cloud computing platform, which competes with Amazon.com’s Amazon Web Services and its online business software.
“I don’t think that narrative will have a long-term impact,” Alex Zukin, managing director of software capital research at RBC Capital Markets, said in an interview. “He is seeing investors more than willing to step into short-term pockets of weakness around certain companies.”
The Teams app, in particular, has benefited from requests to stay home in many countries, reaching 44 million users last month. While much of the increase was related to the new coronavirus and could disappear as workers return to the offices, Hindquian-Bowler and Patel de Macquarie expect the Teams adoption to be permanently higher than it would have been.
In other segments, analysts expect revenue to be weaker than previously anticipated, including paid use of LinkedIn by job recruiters, software tools designed for computer servers located in a company’s own data centers, and including sales of Windows for personal computers, which were halted as factories in China closed during the first three months of the calendar year.
Some of those sources of income could resurface. After reaching supply shortages, for example, laptop orders have picked up as businesses and consumers bought machines for working from home, an impact that could be shown in Microsoft’s fourth-quarter earnings report.
Sales in other units that are more dependent on great one-time deals, like local server software, could be depressed for months, as companies put nonessential expenses in the background. But much of Microsoft’s revenue has been shifted to subscription or consumer-based billing, which should soften the effect.
“The revenue stream for Microsoft is extremely difficult,” said Zukin.
Reuters
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