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3 Key Estimates for Microsoft's Q1 Earnings Report

Ryan McQueeney
Updated

Shares of Microsoft MSFT were slightly higher on Monday morning, ahead of what could prove to be another pivotal week in company history. The software behemoth is slated to announce its fiscal first-quarter earnings results on Thursday afternoon, and investors can expect this stock to dominate headlines before, and after, its report is released.

Over the past several years, global demand for personal computers—and related software—has plummeted. This put Microsoft in a tricky situation; the company known for its innovative Windows operating system now needed to rebrand itself as a tech leader that could adapt to the times.

In many ways, Microsoft has done just that. For one, the company moved to a “freemium” model with Windows 10, offering the new OS as a free upgrade and focusing on the monetization of compatible apps and services.

We’ve also witnessed Microsoft’s evolution through the aggressive growth of its Azure division. Azure is Microsoft’s cloud computing platform that builds, deploys, and manages applications and web services through the company’s own network of data centers. This unit has been growing at a nearly triple-digit rate over the past year or so.

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So what’s in store for Microsoft this quarter? Well, the current Zacks Consensus Estimates are calling for earnings of 73 cents per share and revenue of $23.53 billion. These results would represent year-over-year growth rates of -4.5% and +15.0%, respectively.

Furthermore, Microsoft is carrying a Zacks Rank #3 (Hold) into its report, although its -1.71% Earnings ESP makes the predictive power of this formula less relevant.

Of course, earnings and revenue are just two of the many things investors will be looking at when Microsoft reports on Thursday. Check out these three additional things to expect:

 

These important stock drivers are from our exclusive non-financial metrics consensus estimate file. These estimates are updated daily and are based on the independent research of expert stock analysts. Learn more here>>>

The first thing to note here is that Microsoft’s Productivity & Business Processes unit will benefit from the company’s acquisition of LinkedIn. That deal closed in December 2016, so year-over-year comparisons will be lifted by those revenues.

With that said, our latest consensus estimates are calling for Productivity & Business Processes revenues to gain about 20.4% to hit $8.02 billion. In the previous quarter, Microsoft topped our consensus estimates for this segment and recorded year-over-year growth of 21.2%.

Furthermore, we expect Azure to continue to be a key growth catalyst for Microsoft’s Intelligent Cloud segment. Based on our latest consensus estimates, this unit’s total revenues are expected to gain 5.9% to hit $6.76 billion. Last quarter, Intelligent Cloud outpaced our estimates and posted a year-over-year growth rate of 10.8%.

Finally, we expect the woes in Microsoft’s More Personal Computing division to continue. More Personal Computing, which remains Microsoft’s largest unit for now, includes the company’s hardware, search advertising, and Windows ventures. These have been the areas that Microsoft has struggled with recently, as global demand for PCs has slipped.

After slumping 1.6% last quarter, our current consensus estimate calls for this segment to slip about 5.1% to $8.82 billion.

Make sure to check back here for our full analysis of Microsoft’s actual results later this week!

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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