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Microsoft’s (MSFT - Free Report) Q1 fiscal 2023 earnings release on October 25 will be one of the most-watched during a busy week full of big tech reports.
The software titan is one of the premier tech stocks due to its diverse technology products which include cloud services, server applications, business solutions, management tools, and video games. Trading 31% off its highs, it will be important to see if Microsoft was able to sustain growth in the majority of its business segments.
Image Source: Zacks Investment Research
Last quarter, Microsoft said it expects double-digit revenue and operating income growth in FY23. Investors were delighted about the outlook despite the company mentioning forex (FX) volatility could slightly decrease total revenue growth, cost of goods sold (COGS), and operating expense growth.
Outside of currency headwinds, Wall Street will be monitoring Microsoft’s prior outlook that weakness in PC market demand and lower advertising spend will impact Windows OEM, Surface, and LinkedIn.
Acquisitions & Cloud Growth
Acquisitions have helped boost Microsoft’s growth, the company has shown the ability to acquire popular companies like LinkedIn and many others over the years. Investors hope that LinkedIn can continue adding to Microsoft’s revenue and that operating costs can be contained.
Last quarter LinkedIn revenue increased by $3.5 billion year over year, up 34%.This was driven by a strong job market and advertising demand in its Marketing Solutions business. It will be important to see if this can continue with many social media companies such as Meta Platforms’ (META - Free Report) Facebook also warning of slower advertising spending.
Investors will also be looking for confirmation on the planned close of the Activision Blizzard deal. As of now, Microsoft’s guidance for FY23 does not include any impact from Activision Blizzard. Microsoft has been expecting the $68.7 billion acquisition to close by the end of FY23.
Microsoft hopes that Activision Blizzard can bring in additional revenue streams to go along with LinkedIn and its growing cloud technology Azure. In its most recent quarter, Microsoft Cloud services brought in revenue of $25 billion, up 28% year over year. The company saw strong demand, gained market share, and increased customer commitment to its cloud platform.
It will be important to see if Microsoft was able to keep taking market share in cloud services from other big tech competitors like Amazon (AMZN - Free Report) , and Alphabet (GOOGL - Free Report) . Despite Azure’s year over year growth, it slowed from the previous quarter and missed analysts’ expectations last quarter.
Fiscal Q1 Outlook
The Zacks Consensus Estimate for MSFT’s fiscal Q1 earnings is $2.30 a share, which would represent a 1% increase from Q1 2022. Sales for the quarter are also expected to be up 9% at $49.57 billion. However, it is important to note that estimates for the quarter have gone down in the last week and are lower than the $2.44 per share expectations at the beginning of the quarter.
Year over year, MSFT is projected to post 8% earnings growth in fiscal 2023 with its FY24 earnings set to grow another 15%. Solid top line growth is also expected, with FY23 sales projected to climb 10% and another 13% in FY24 to $247.57 billion.
Performance & Valuation
Year to date MSFT is down -28% near the S&P 500’s -24% drop. However, over the last decade, MSFT is up +760% to crush the benchmark. Investors will hope that MSFT can get back to its dominant performance despite the tougher operating environment.
Image Source: Zacks Investment Research
Trading around $242 a share, MSFT has a P/E of 23.4X. This is near the industry average and much lower than its decade high of 37.4X and close to its median of 23.2X. MSFT trades a discount relative to its past but an earnings beat and reaffirming FY23 guidance will be key for investors to see in the current unfavorable market conditions for tech stocks.
Image Source: Zacks Investment Research
Bottom Line
Despite missing fiscal Q4 earnings expectations, MSFT stock rallied after the quarterly report as investors became optimistic about its better than expected FY23 guidance. With earnings estimates revisions trending down throughout the quarter much of the optimism began to fade. Wall Street wants to see Microsoft produce strong fiscal Q1 results and more importantly reaffirm its FY23 guidance as the economic downturn and operating environment has worsened since the company gave its outlook.
MSFT currently lands a Zacks Rank #4 (Sell) in correlation with the downward earnings estimate revisions for the current quarter, fiscal 2023, and FY24. Microsoft’s Computer-Software Industry is also in the bottom 48% of over 250 Zacks Industries.
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Can Earnings Boost Microsoft (MFST) Stock?
Microsoft’s (MSFT - Free Report) Q1 fiscal 2023 earnings release on October 25 will be one of the most-watched during a busy week full of big tech reports.
The software titan is one of the premier tech stocks due to its diverse technology products which include cloud services, server applications, business solutions, management tools, and video games. Trading 31% off its highs, it will be important to see if Microsoft was able to sustain growth in the majority of its business segments.
Image Source: Zacks Investment Research
Last quarter, Microsoft said it expects double-digit revenue and operating income growth in FY23. Investors were delighted about the outlook despite the company mentioning forex (FX) volatility could slightly decrease total revenue growth, cost of goods sold (COGS), and operating expense growth.
Outside of currency headwinds, Wall Street will be monitoring Microsoft’s prior outlook that weakness in PC market demand and lower advertising spend will impact Windows OEM, Surface, and LinkedIn.
Acquisitions & Cloud Growth
Acquisitions have helped boost Microsoft’s growth, the company has shown the ability to acquire popular companies like LinkedIn and many others over the years. Investors hope that LinkedIn can continue adding to Microsoft’s revenue and that operating costs can be contained.
Last quarter LinkedIn revenue increased by $3.5 billion year over year, up 34%.This was driven by a strong job market and advertising demand in its Marketing Solutions business. It will be important to see if this can continue with many social media companies such as Meta Platforms’ (META - Free Report) Facebook also warning of slower advertising spending.
Investors will also be looking for confirmation on the planned close of the Activision Blizzard deal. As of now, Microsoft’s guidance for FY23 does not include any impact from Activision Blizzard. Microsoft has been expecting the $68.7 billion acquisition to close by the end of FY23.
Microsoft hopes that Activision Blizzard can bring in additional revenue streams to go along with LinkedIn and its growing cloud technology Azure. In its most recent quarter, Microsoft Cloud services brought in revenue of $25 billion, up 28% year over year. The company saw strong demand, gained market share, and increased customer commitment to its cloud platform.
It will be important to see if Microsoft was able to keep taking market share in cloud services from other big tech competitors like Amazon (AMZN - Free Report) , and Alphabet (GOOGL - Free Report) . Despite Azure’s year over year growth, it slowed from the previous quarter and missed analysts’ expectations last quarter.
Fiscal Q1 Outlook
The Zacks Consensus Estimate for MSFT’s fiscal Q1 earnings is $2.30 a share, which would represent a 1% increase from Q1 2022. Sales for the quarter are also expected to be up 9% at $49.57 billion. However, it is important to note that estimates for the quarter have gone down in the last week and are lower than the $2.44 per share expectations at the beginning of the quarter.
Year over year, MSFT is projected to post 8% earnings growth in fiscal 2023 with its FY24 earnings set to grow another 15%. Solid top line growth is also expected, with FY23 sales projected to climb 10% and another 13% in FY24 to $247.57 billion.
Performance & Valuation
Year to date MSFT is down -28% near the S&P 500’s -24% drop. However, over the last decade, MSFT is up +760% to crush the benchmark. Investors will hope that MSFT can get back to its dominant performance despite the tougher operating environment.
Image Source: Zacks Investment Research
Trading around $242 a share, MSFT has a P/E of 23.4X. This is near the industry average and much lower than its decade high of 37.4X and close to its median of 23.2X. MSFT trades a discount relative to its past but an earnings beat and reaffirming FY23 guidance will be key for investors to see in the current unfavorable market conditions for tech stocks.
Image Source: Zacks Investment Research
Bottom Line
Despite missing fiscal Q4 earnings expectations, MSFT stock rallied after the quarterly report as investors became optimistic about its better than expected FY23 guidance. With earnings estimates revisions trending down throughout the quarter much of the optimism began to fade. Wall Street wants to see Microsoft produce strong fiscal Q1 results and more importantly reaffirm its FY23 guidance as the economic downturn and operating environment has worsened since the company gave its outlook.
MSFT currently lands a Zacks Rank #4 (Sell) in correlation with the downward earnings estimate revisions for the current quarter, fiscal 2023, and FY24. Microsoft’s Computer-Software Industry is also in the bottom 48% of over 250 Zacks Industries.