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Key Factors That May Impact Microsoft's (MSFT) Q2 Earnings
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Microsoft Corp. (MSFT - Free Report) is set to report second-quarter fiscal 2018 results on Jan 31 after the closing bell.
Notably, the company has a positive record of earnings surprises in the trailing four quarters, with an average beat of 16.4%. Last quarter, the company delivered a positive earnings surprise of 16.7%.
Last quarter, the company reported earnings of 84 cents per share, which beat the Zacks Consensus Estimate by 12 cents. The figure rallied 16.7% on a year-over-year basis.
Revenues of $24.54 billion increased almost 12% from the year-ago quarter (up 11% in constant currency or cc). Further, the figure exceeded the Zacks Consensus Estimate of $23.53 billion. Favorable foreign exchange positively impacted revenues by one point. LinkedIn contributed 5 points to revenue growth.
Microsoft stated that better-than-expected performance in large markets like France, Japan and UK along with stable results in Brazil and Russia drove top-line growth.
Notably, the stock has returned 47.6% in the last year, outperforming the industry’s rally of 43.4%.
What to Expect?
Microsoft is projected to witness quarterly sales climb to $28.35 billion, based on current Zacks Consensus Estimates, which would mark an 8.77% year-over-year ascent. The company is expected to see its bottom-line expand by 3.61% to reach 86 cents per share.
Azure, Office 365 Drives Growth
Microsoft’s cloud computing service — Azure — has been the major catalyst in recent times.
Microsoft’s acquisition of Avere Systems, a start-up specializing in data storage systems, will help strengthen and increase the use of its Azure public cloud. The company’s cloud services are a major contributor to its revenue stream. Per the company’s first-quarter fiscal 2018 results, server product and cloud services revenues went up 17% year over year, with Azure revenues soaring 89%.
We believe that robust adoption of Azure will continue to drive Microsoft’s top-line in the soon-to-be reported quarter.
Microsoft is also gaining from its increasing traction in blockchain technology. Its collaboration with Bank Hapoalim for the use of blockchain technology for digital bank guarantees is aiding Azure to penetrate the cloud market.
Adoption remains strong as evident from the growing customer base. Azure has been selected by the likes of Costco, Symantec, Bank of America Corporation, TD Bank and Sumitomo Mitsui Banking Corporation.
Data center expansion continues with Azure now in 42 regions globally, more than any other cloud provider.
Intelligent Cloud revenues (Azure falls under this segment) are projected between $7.35 billion and $7.55 billion, with another quarter of double-digit revenue growth across server products and cloud services.
We note that strong Office 365 and Windows 10 adoption are other growth drivers. The launch of a plethora of products — Microsoft Teams in Office 365 for Education, Microsoft 365, Microsoft Relationship Sales solution and ISV Cloud Embed – is anticipated to drive installed base. Moreover, Microsoft continues to add features to Windows 10 that makes it more attractive for consumers as well as enterprises.
Recently, the company released updates for Windows to prevent malware attacks from exploiting Meltdown Vulnerability in Intel x86-64 processors. This software update is part of a series of updates that will shield against the newly discovered processor bug in Intel, AMD and ARM chipsets.
Microsoft is also one of the largest providers of gaming hardware. The Xbox One X has a wide adoption rate as evident from its early sales figures. It has been outperforming Sony’s PS4 Pro by a significant margin. Moreover, high product adoption rates as well as robust performance from its surface line of devices are driving the top line.
Cloud Platform and Collaborations Fuel Growth
Microsoft’s Azure has seen a significant boost due to the increasing adoption of cloud-based technologies. The company’s collaboration with Symantec Corp to increase Symantec’s operational efficiency by incorporating hybrid cloud technology has been a major revenue generator.
Additionally, the acquisition of AltspaceVR and launch of mixed reality headsets are evidence of its advancements in the fields of virtual reality and augmented reality. Moreover, strategic partnerships with Amazon Inc’s (AMZN - Free Report) Alexa and Red Hat are positives for the company's growth prospects.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Microsoft carries a Zacks Rank #3 (Hold) and its Earnings ESP is +0.21%.
Other Stocks With Favorable Combination
Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:
Ally Financial Inc. (ALLY - Free Report) , with an Earnings ESP of +1.27% and a Zacks Rank of 1.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Image: Bigstock
Key Factors That May Impact Microsoft's (MSFT) Q2 Earnings
Microsoft Corp. (MSFT - Free Report) is set to report second-quarter fiscal 2018 results on Jan 31 after the closing bell.
Notably, the company has a positive record of earnings surprises in the trailing four quarters, with an average beat of 16.4%. Last quarter, the company delivered a positive earnings surprise of 16.7%.
Last quarter, the company reported earnings of 84 cents per share, which beat the Zacks Consensus Estimate by 12 cents. The figure rallied 16.7% on a year-over-year basis.
Revenues of $24.54 billion increased almost 12% from the year-ago quarter (up 11% in constant currency or cc). Further, the figure exceeded the Zacks Consensus Estimate of $23.53 billion. Favorable foreign exchange positively impacted revenues by one point. LinkedIn contributed 5 points to revenue growth.
Microsoft stated that better-than-expected performance in large markets like France, Japan and UK along with stable results in Brazil and Russia drove top-line growth.
Notably, the stock has returned 47.6% in the last year, outperforming the industry’s rally of 43.4%.
What to Expect?
Microsoft is projected to witness quarterly sales climb to $28.35 billion, based on current Zacks Consensus Estimates, which would mark an 8.77% year-over-year ascent. The company is expected to see its bottom-line expand by 3.61% to reach 86 cents per share.
Azure, Office 365 Drives Growth
Microsoft’s cloud computing service — Azure — has been the major catalyst in recent times.
Microsoft’s acquisition of Avere Systems, a start-up specializing in data storage systems, will help strengthen and increase the use of its Azure public cloud. The company’s cloud services are a major contributor to its revenue stream. Per the company’s first-quarter fiscal 2018 results, server product and cloud services revenues went up 17% year over year, with Azure revenues soaring 89%.
We believe that robust adoption of Azure will continue to drive Microsoft’s top-line in the soon-to-be reported quarter.
Microsoft is also gaining from its increasing traction in blockchain technology. Its collaboration with Bank Hapoalim for the use of blockchain technology for digital bank guarantees is aiding Azure to penetrate the cloud market.
Adoption remains strong as evident from the growing customer base. Azure has been selected by the likes of Costco, Symantec, Bank of America Corporation, TD Bank and Sumitomo Mitsui Banking Corporation.
Data center expansion continues with Azure now in 42 regions globally, more than any other cloud provider.
Intelligent Cloud revenues (Azure falls under this segment) are projected between $7.35 billion and $7.55 billion, with another quarter of double-digit revenue growth across server products and cloud services.
We note that strong Office 365 and Windows 10 adoption are other growth drivers. The launch of a plethora of products — Microsoft Teams in Office 365 for Education, Microsoft 365, Microsoft Relationship Sales solution and ISV Cloud Embed – is anticipated to drive installed base. Moreover, Microsoft continues to add features to Windows 10 that makes it more attractive for consumers as well as enterprises.
Recently, the company released updates for Windows to prevent malware attacks from exploiting Meltdown Vulnerability in Intel x86-64 processors. This software update is part of a series of updates that will shield against the newly discovered processor bug in Intel, AMD and ARM chipsets.
Microsoft is also one of the largest providers of gaming hardware. The Xbox One X has a wide adoption rate as evident from its early sales figures. It has been outperforming Sony’s PS4 Pro by a significant margin. Moreover, high product adoption rates as well as robust performance from its surface line of devices are driving the top line.
Cloud Platform and Collaborations Fuel Growth
Microsoft’s Azure has seen a significant boost due to the increasing adoption of cloud-based technologies. The company’s collaboration with Symantec Corp to increase Symantec’s operational efficiency by incorporating hybrid cloud technology has been a major revenue generator.
Additionally, the acquisition of AltspaceVR and launch of mixed reality headsets are evidence of its advancements in the fields of virtual reality and augmented reality. Moreover, strategic partnerships with Amazon Inc’s (AMZN - Free Report) Alexa and Red Hat are positives for the company's growth prospects.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Microsoft carries a Zacks Rank #3 (Hold) and its Earnings ESP is +0.21%.
Other Stocks With Favorable Combination
Here are a couple of companies which, as per our model, have the right combination of elements to post an earnings beat this quarter:
BofI Holding, Inc. , with an Earnings ESP of +5.79% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ally Financial Inc. (ALLY - Free Report) , with an Earnings ESP of +1.27% and a Zacks Rank of 1.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>