Yahoo Finance The one thing in Microsoft’s earnings investors will be watching
Microsoft (MSF) will announce its Q1 2017 earnings after the closing bell Thursday, and the biggest news will be how well the company’s cloud services are performing. The cloud has been a key tenet of Microsoft CEO Satya Nadella’s mission for the tech giant. He has said the company needs to be “mobile first, cloud first.”
When Nadella talks about mobile, though, he isn’t talking about Microsoft’s own smartphone brand. He’s talking about ensuring that Microsoft’s services are available across mobile platforms, especially Apple’s (AAPL) iOS and Google’s (GOOG) Android.
The biggest indicators of Microsoft’s continued cloud strategy success will be how well its Azure cloud computing and Office 365 productivity services have performed over the past quarter.
The consensus is that the company will report revenue of $0.68 per share on $21.7 billion, a $0.01 improvement year-over-year.
RBC Capital Markets analysts Ross MacMillan and Matthew Hedberg expect the company’s server product growth to see a 1% increase versus year-over-year, with Azure and Office 365 numbers increasing by 80% and 48% (seat growth), respectively year-over-year. In a recent note, analysts said that Microsoft’s cloud services will be an asset with continued long-term growth going forward, as more businesses move to the company’s offerings.
The cloud is seen by many in the tech industry as the future for computing, with businesses able to move away from having to purchase and run their own massive servers by handing off the burden to companies like Microsoft.
It’s also important to note, however, that Microsoft has an enormous competitor in Amazon’s (AMZN) Amazon Web Services, and a growing threat in Google’s own enterprise services.
Outside of Microsoft’s cloud offerings, it will be important to note how well the company’s Windows 10 adoption is moving along. Of equal importance is if Microsoft will continue to see revenue growth in the commercial Windows market. Surprisingly, the consumer Windows market was up 27% in Q4 2016. Microsoft could see solid performance in this area thanks to back-to-school shoppers.
While the Windows maker reported an increase in revenue on its Surface Pro and Surface Book line of first-party hardware devices, RBC says the products could prove risky for Microsoft.
“We are not averse to having a hardware business if the economics make sense,” the analysts said. “Unless Microsoft can get to hardware breakeven within two years, or demonstrate sufficient offsetting value elsewhere in the portfolio, we think the company should exit the hardware business.”
Interestingly, Microsoft is expected to announce an entirely new Surface product category at an event in New York on Oct. 26. The device, it has been widely reported, could be a Surface-branded all-in-one desktop PC with a heavy emphasis on performance for consumers in need of high-end machines including designers and gamers.
The Surface Pro 4 and Surface Book received a good deal of critical praise when they were released last year, including from yours truly, so Microsoft might not feel as though an update is needed at this point.
Apple, however, is expected to announce major improvements to its MacBook line of laptops during an event conveniently scheduled for the day after Microsoft’s. Part of the reason the Surface Pro 4 and Surface Book have been so well regarded is that they outclass Apple’s own products in terms of hardware performance.
But with Apple rolling out new notebooks, that may no longer be the case, and Microsoft could end up kicking itself for deciding not to update its devices.
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Email Daniel at dhowley@yahoo-inc.com; follow him on Twitter at @DanielHowley.
