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Factors to Note Ahead of Microsoft (MSFT) Q4 Earnings Release

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Microsoft (MSFT - Free Report) is scheduled to release fourth-quarter fiscal 2021 results on Jul 27.

The Zacks Consensus Estimate for its fiscal fourth-quarter earnings has remained steady over the past 30 days at $1.90 per share, indicating an improvement of 30.1% from the year-ago reported figure.

The Zacks Consensus Estimate for revenues stands at $44.07 billion, suggesting growth of 15.9% from the prior-year quarter.

The company has a trailing four-quarter earnings surprise of 14.83%, on average.

Microsoft Corporation Price and EPS Surprise


Microsoft Corporation Price and EPS Surprise

Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote


Factors Likely to Have Influenced Q4 Performance

Microsoft’s fiscal fourth-quarter performance is expected to have benefitted from strength in its cloud computing platform, Azure. Azure is witnessing rapid adoption owing to the pandemic-led digital transformation across the globe.  

Microsoft’s workspace communication offering, Teams, has been witnessing continued momentum due to continuation of work from home and online learning trends. In the last reported quarter, Microsoft announced that the Teams app had 145 million daily active users.

The company continues to enhance Teams with addition of capabilities that let users seamlessly carry on work from anywhere, which might have driven growth amid the pandemic. The gradual implementation of hybrid work model is expected to have further boosted adoption of the video conferencing app.

Strong upsell opportunity for Microsoft E5 and momentum in Microsoft 365 are expected to have contributed to growth in Office commercial.

Strength in Microsoft Power Platform is also likely to have aided top-line performance in the quarter to be reported. Power platform, the company’s next-generation business process automation platform, boasts a strong user base of 16 million.

Search and LinkedIn revenues are anticipated to have been driven by increasing advertising demand and an improving job market scenario.

Revenues from Windows are likely to have been driven by momentum in Windows Commercial products and cloud services growth, and robust PC demand.

Microsoft’s gaming segment is likely benefit from increase in Xbox Live monthly active users and adoption of Game Pass subscriptions owing to reimposition of shelter in place guidelines across several parts of the world. The addition of several ZeniMax Media’s gaming titles to the Game Pass roster following the completion of acquisition is likely to have attracted more subscribers.  

However, at the fiscal third-quarter earnings conference, Microsoft noted that Xbox content and services revenue are expected to decline in the mid- to high single digits range owing to tougher year-over-year comparisons in the fiscal fourth quarter. Meanwhile, demand for Xbox Series X and S is expected to be negatively impacted by supply issues.

Revenues from Surface devices in the to-be-reported quarter are likely to negatively impacted due to tough year-over-year comparisons, noted the tech giant.

Increasing expenses on product development coupled with stiff competition from the likes of Amazon (AMZN - Free Report) and Google Cloud in the cloud space and Zoom Video (ZM - Free Report) in the video conferencing space are likely to have kept margin expansion under check in the fiscal fourth quarter.

Major Developments in Q4

During the fiscal fourth quarter, the tech giant announced the acquisition of Nuance Communications (NUAN - Free Report) for $19.7 billion (including Nuance’s net debt) in an all-cash deal. The acquisition has been approved by boards of directors of the companies and is expected to be concluded by the end of 2021.

In the quarter under review, wireless service provider AT&T announced the migration its 5G mobile network to Azure cloud platform.

In June 2021, Microsoft debuted the latest iteration of its Windows operating system — Windows 11. Notably, Windows 11 features a Start Button at the center along with Teams Integration and an overhauled Microsoft Store, among others.

At present, Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.