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What to Expect Ahead of Microsoft (MSFT) Q1 Earnings Release?

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Microsoft (MSFT - Free Report) is slated to release first-quarter fiscal 2022 results on Oct 26.

The Zacks Consensus Estimate for its fiscal first-quarter earnings has remained steady in the past 30 days at $2.06 per share, indicating an improvement of 13.2% from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for revenues is pegged at $43.87 billion, suggesting growth of 18.1% from the prior-year quarter’s levels.

The company has a trailing four-quarter earnings surprise of 16.9%, 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 Q1 Performance

Continued strength in its cloud computing platform, Azure, is expected to have positively impacted the company’s fiscal first-quarter numbers. Azure is witnessing rapid adoption owing to the accelerated digital transformation by business enterprises globally.  Also, migration of SAP’s critical workloads including Enterprise Resource Planning by business enterprises to Azure bodes well.

Momentum witnessed for Teams, which is Microsoft’s workspace communication offering, might have acted as a tailwind. Teams App is attracting more users amid continuation of work from home and hybrid work innovation.  The company noted that Microsoft Teams has a monthly active user base of 250 million at the end of fourth-quarter fiscal 2021.

The integration of Teams with Microsoft’s various inhouse offerings —SharePoint, PowerPoint presentations, Stream, Dynamics 365 — makes it a winner as it enables an easy collaboration and engagement, while driving outcomes and saving time.

Solid uptick in Teams and strong Azure demand instill investors’ confidence in the company, which currently carries a Zacks Rank #2 (Buy). Shares of Microsoft have returned 38.2% in the year-to-date period compared with the industry’s rally of 34.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Revenues from Windows are likely to have been driven by steady traction seen in Windows Commercial products, cloud services growth and healthy PC demand.

Microsoft expects fiscal first-quarter Windows commercial products and cloud services revenues to grow in the double-digit range driven by demand for Microsoft 365 and advanced security solutions.

Healthy adoption of the Microsoft Power Platform is likely to have contributed to the top line in the quarter to be reported. Power platform, the company’s next-generation business process automation platform, reported revenue growth of 83% year over year for fiscal 2021.

Strong upsell opportunities for Microsoft E5 and momentum in Microsoft 365 are expected to have contributed to growth in Office commercial. High adoption of Dynamics 365 is likely to boost revenues from Dynamics products and cloud services business.

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

Microsoft’s gaming segment is likely to benefit from increases in adoption of Game Pass subscription service and Xbox Live monthly active users. The addition of several ZeniMax Media’s gaming titles to the Game Pass roster, following the completion of the acquisition, is likely to have attracted more subscribers. 

In the fiscal fourth-quarter earnings conference, Microsoft noted that Xbox content and services revenues are projected to increase in the low-single digits range owing to tougher year-over-year comparisons. Demand for Xbox Series X and S will continue to be affected by supply issues.

Revenues from Surface devices in the to-be-reported quarter are likely to be negatively impacted by supply chain disruptions, noted the tech giant. The company expects overall Windows OEM revenues to decline in the mid to high-single digits range in the fiscal first quarter.

Higher expenses on product development coupled with intensifying competition from the likes of Amazon (AMZN - Free Report) and Google Cloud in the cloud space and Cisco (CSCO - Free Report) and Zoom Video (ZM - Free Report) in the video conferencing space are likely to have dented margins in the to-be-reported quarter.

Major Developments in Q1

During the fiscal first quarter, the tech giant rolled out Windows 365 computing service that puts its Windows operating system on to the cloud. Windows 365 features Cloud PC, which is a new hybrid personal computing category. Cloud PC is designed to help businesses deliver a comprehensive and customized PC operating system (Windows 10 as well as the upcoming Windows 11) experience on any device via cloud platform.

In September, at the Tokyo Game Show 2021, Microsoft launched its Xbox cloud gaming service in Australia, Brazil, Japan and Mexico bundled with Xbox Game Pass Ultimate subscription. With the launch in these four countries, the company’s cloud gaming will be available in 26 countries across the globe.

Microsoft also unveiled a new array of Surface products including a new dual-screen smartphone — Surface Duo 2. Microsoft introduced a new Surface Laptop Studio as well as redesigned versions of 2-in-1 laptops Surface Pro 8 and Surface Go 3 along with updates to Surface Pro X.

On Sep 14, Microsoft’s board approved a new share buyback plan allowing it to repurchase up to $60 billion worth of shares over an unspecified period. The buyback plan has no expiry date and may also be dismissed at any time. The company also approved a 11% hike in quarterly cash dividend to 62 cents per share, bringing the annualized dividend rate to $2.48 per share.