With Microsoft shares (MSFT) now above $ 200, and its market capitalization above $ 1.5 trillion, it is safe to assume that many investors expect strong numbers to be shared on Wednesday.
Currently, the consensus among analysts surveyed by FactSet is for Microsoft to post June quarter (fiscal fourth quarter) revenue of $ 36.43 billion (an 8% annual increase), EPS GAAP of $ 1.36 and non-GAAP EPS of $ 1.38 . And for the September quarter, Microsoft generally provides sales guidance in its earnings calls, revenue consensus is $ 35.8 billion (up 8%).
Here are a few things to watch as Microsoft reports after Wednesday’s bell and makes a profit call at 5:30 PM ET.
1. Tax orientation 2021
Microsoft generally uses its June quarter earnings call to provide some revenue growth and spending guidance for the upcoming fiscal year. A year ago, the company led (among other things) double-digit revenue growth for fiscal year 2020 and operating expense growth from 11% to 12%.
Microsoft’s year-round guidance may be less specific this time, given the amount of macro uncertainty that currently exists. But (if that’s the case) the company could still provide some high-level feedback on how it currently sees trending revenues and expenses in FY2021.
2. Commercial reserves and RPO growth
After increasing 31% annually during its December quarter, Microsoft’s commercial reserves grew just 7% during its March quarter, blaming the tough annual offsets and fewer contracts that are about to be renewed. Remaining business performance obligations (RPOs: All Business Revenue that Microsoft has under contract and has not yet recognized) still increased a healthy 24% to $ 89 billion.
CFO Amy Hood said in April that growth in reserves for the June quarter will benefit from high renewal rates on a larger base of contracts to be renewed. However, echoing many other software companies that have seen COVID-19 impact new business activity, he also warned that changing sales dynamics will be an obstacle, particularly among the “industries and segments most affected by COVID-19 “
3. Blue growth
Azure revenue increased 59% annually during Microsoft’s March quarter. And while COVID-19 may have interrupted the signing of some new Azure deals during the June quarter, it has also (as Satya Nadella emphasized during the April call) pushed for increased use of the public cloud in various fields.
Along with Azure’s revenue growth rate, be on the lookout for any usage disclosures on Azure services that might be seeing particularly high demand right now, for example its virtual desktop services or Azure Active Directory identity.
4. Windows growth
Weak demand for corporate desktops and slower closings of corporate deals are a drag on Windows’ revenue right now. On the other hand, strong demand for laptops is a tailwind, as is the growing adoption of Microsoft 365 plans that (among other things) provide Windows licenses and Office 365 subscriptions.
In April, Microsoft guided its Windows OEM revenue (driven by new PC sales) to increase by a low to medium single-digit percentage, and its Windows business revenue (driven by direct sales) organizations) will increase by a medium level. single digit percentage.
5. Office and dynamic growth
Microsoft guided its Productivity and Business Processes segment, which covers the Office and Dynamics business application franchises, along with LinkedIn, to record June quarter revenue of $ 11.65 billion to $ 11.95 billion, compared to prior year revenue of $ 11.05 billion. The company noted that 80% of this revenue was already covered by existing contracts and renewals, and warned that the other 20% was “subject to greater volatility in the current environment.”
Watch for growth rates for Office Commercial, Office Consumer, and Dynamics (respectively 13%, 15%, and 17% in the March quarter), as well as growth in Office 365 business seats (20% in the March quarter). March) and shared user growth updates on the Microsoft Teams collaboration platform, for which paid features are often included with Office 365 subscriptions.
6. Surface revenue and games
With strong demand for Surface hardware among remote workers and students, Microsoft led its PC / tablet franchise to see low growth in the June quarter for teens, a significant acceleration of growth of 1% in the March quarter. .
Similarly, with the locks that have fueled a huge increase in gaming activity, Microsoft guided by its gaming revenue: it covers Xbox sales, game sales, Xbox game royalties, and services like Xbox Live and Xbox Game Pass, to grow at a high level. Teen Percentage The company may cast a softer outlook for the September quarter, as it has just finished production of two of its three Xbox One models before the launch of the Xbox X series for the holiday season.
7. Capital expenditure
The Internet / cloud giants have been spending heavily on data center capital spending this year, thanks in part to recent spikes in usage, and Microsoft is no exception. His capital spending increased 15% annually during the March quarter to $ 3.9 billion, and Hood predicted that the June quarter would see “a significant sequential increase” to that number.
8. Repurchases of shares
Microsoft has been spending a good chunk of its free cash flow on buybacks for some time, and may have done so once again in the June quarter. The company spent $ 7.1 billion on repurchases during its March quarter and $ 17.2 billion during the first nine months of fiscal year 2020.
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