Microsoft (MSFT) – Get report reports its latest earnings this week, and Wall Street is bullish on the tech giant’s prospects in the coming quarters.
Prior to their June quarter earnings release (fiscal fourth quarter) on Wednesday after closing, the 13 analysts listed on FactSet maintain a buy rating on Microsoft stocks, although most have lowered their earnings estimates for the Microsoft’s fourth fiscal quarter, which is the first that completely overlapped with the COVID-19 pandemic.
“We have seen Microsoft become a major force in helping businesses transform into the Covid-19 environment, and the two biggest beneficiaries have been its cloud infrastructure and remote collaboration businesses,” said Nick McQuire, vice president of CCS Insight. “However, we are now in a new economic reality and swaths of companies are having to readjust and rebuild themselves. Microsoft will likely elevate key areas such as customer success and engagement, industry specialization, professional services and training for demonstrate that you are helping companies not only to land, but to continue with their investments in digital transformation “.
On average, analysts expect total revenue of $ 36.54 billion and earnings of $ 1.34 for the quarter ending in June. Here are some key themes to see:
1. Growth of the commercial cloud
Microsoft’s cloud business could reach 40% of total sales for the first time in the June quarter, driven by high growth in its cloud business offerings, according to Piper Sandler analyst Brent Bracelin. Braceline includes in Microsoft’s commercial cloud group Azure Commercial Cloud, LinkedIn Commercial Cloud, and Dynamics 365 Commercial Cloud, and believes the group could grow more than 31% year-over-year in the second quarter, driven in part by current work – household dynamics (on Tuesday, however, Microsoft said it was cutting 6% of LinkedIn jobs as fewer and fewer companies hire workers).
Despite economic difficulties, the segment appears poised for further growth “as digital business adoption plans begin to resurface with greater acceptance and urgency,” Bracelin wrote. Microsoft has announced a series of new strategic partnerships with BlackRock, Coca-Cola, FedEx, the NBA, and others. On Wednesday, watch for comments from Microsoft on the trends they saw in the second quarter and the sources of growth in their cloud business.
2. Personal computing
Among the weaknesses in Microsoft’s fiscal third-quarter earnings release are Windows revenue, which was driven in part by lower demand for corporate desktop computers. At the time, Microsoft told investors to expect its Windows OEM revenue, driven by sales of new PCs, to increase by a low to medium single-digit percentage; for his commercial Windows business, he guided mid-single digit revenue growth.
According to Jeffries analyst Brent Thill, that modest guidance could leave room for a rise in the Windows OEM, due to a “strong reversal in PC shipments.” Gartner forecasts that PC shipments will increase 3% in the second quarter of the calendar, while IDC estimates an increase of 11%. Both show an acceleration compared to the previous quarter, which could work in Microsoft’s favor.
3. Azure
Microsoft’s Azure has been a key piece of the company’s overall growth story in recent years. Although the company doesn’t divide Azure’s revenue in gross dollar terms, investors are very interested in Azure’s developments, the pace of its growth, and how it compares to competitors like Amazon. (AMZN) – Get report AWS and Google (GOOGL) – Get report Cloud.
Last quarter, Microsoft warned that Azure growth would moderate to the low 50% range due to industries heavily impacted by COVID-19, and that revenue from server products would fall (both are included in the smart computing segment. from Microsoft). Based on healthy cloud activity, Wedbush analyst Dan Ives estimates 55% growth in Azure. But in the current economic environment, it’s safe to expect relatively moderate Azure growth in the coming quarters. On the other hand, Microsoft’s diversified cloud product mix makes it “the central name of the cloud to play” in COVID-19, Ives wrote.
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