3 Things Microsoft Investors Need to Scrutinize After Thursday’s Close

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MSFT - 3 Things Microsoft Investors Need to Scrutinize After Thursday’s Close

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Giving credit where it’s due, Microsoft Corporation (NASDAQ:MSFT) has resisted the mostly-bearish market tide that’s been trying to work against is since January. Though the S&P 500 is down nearly 10% since its Jan. 26 peak, MSFT stock is only off by about 3% for the same timeframe. Clearly investors think there’s something different enough about the software giant to merit persistent bullishness.

Those investors will find out for sure after Thursday’s closing bell rings. That’s when the Microsoft will report its fiscal third-quarter numbers.

There will be plenty of data nuggets to sift through, to be sure, but there are three specific items that will push MSFT shares around more so than any other.

Microsoft Earnings on Tap

It should be another good report.

For the quarter ending in March, analysts collectively expect Microsoft to turn $25.8 billion worth of revenue into per-share earnings of 85 cents. That top line would be a 9.4% improvement on a year-over-year basis, while the bottom line would be 21% better than the profit of 70 cents per share of MSFT stock posted in the comparable quarter a year earlier.

For the record though, it would be unusual if Microsoft didn’t exceed its earnings expectations … by a lot. It’s not missed an estimate since the third quarter of 2016, and in all but one of those quarters its topped analysts’ outlook. The average ‘beat’ is roughly 18% higher than analysts’ forecast.

The 3 Biggies

As was noted, there will be plenty for investors to chew on within the company’s earnings report. Investors will have three things on their mind more than any other matters though.

1. Azure

Azure is the centerpiece of Microsoft’s cloud computing division, giving users an easy and intuitive way to access the cloud and all it has to offer. Its revenue was up 98% year-over-year in the previous quarter, helping to drive 15% growth for the company’s overarching ‘Intelligent Cloud’ arm. As of the prior quarter, Microsoft’s cloud revenue was rolling in at an annualized pace of more than $20 billion.

That still leaves the company’s cloud business smaller than the one operated by Amazon.com, Inc. (NASDAQ:AMZN), but Microsoft is starting to chip away at Amazon Web Services’ dominance.

It’s unlikely we’ll see Azure’s revenue grow by a similar factor, simply because the law of large numbers is already creating tougher comparisons. The ongoing migration to cloud-computing platforms, however, should still translate into impressive comps.

2. Office 365

Technically speaking it’s cloud-based, but Microsoft doesn’t count online access to its Office productivity suite as part of its cloud computing arm. Rather, it falls under the ‘Productivity and Business Processes’ umbrella.

However it’s categorized, business-class users love it. There were 29.2 million Office 365 users as of the end of the final quarter of calendar 2017 — a 30% improvement — helping to boost that division’s sales by 25%.

Arguably most impressive is that Microsoft has convinced 29.2 million users to pay a monthly fee for a cloud-based service that’s available for free from other providers. For instance, Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) offers Google Docs to anyone that registers a username.

3. LinkedIn

Last but not least, though it’s not yet a high-impact arm in terms of the revenue or earnings it contributes, the often-questioned 2016 acquisition of LinkedIn has been more than validated by Microsoft in the meantime. It’s not only been a means to make Microsoft Office an even more potent tool for enterprise-level users, but it’s allowed the company to introduce new features like artificial intelligence tools to a crowd that may never have thought of using AI.

LinkedIn CEO Jeff Weiner recently explained “Outlook would be a perfect example where you understand who it is sending you an email, you understand who they’re connected to and you can get connected to them. Taking that social fabric and leveraging that across not only Outlook but the Office suite is really potentially powerful.”

However it’s used, LinkedIn’s revenue is expected to have reached $1.22 billion during the third fiscal quarter. That’s down from the previous quarter’s total of $1.3 billion, but would still be up by 26%.

Bottom Line for MSFT Stock

Simply put, Thursday’s earnings report is Microsoft’s to blow. Investors, as well as analysts, have been bold enough to not only maintain their bullishness on MSFT stock but to resist selling MSFT when most other names are struggling.

KeyBanc Capital Markets analyst Brent Bracelin recently summed up the consensus when he reiterated his “Overweight” rating on the stock “The combination of Office 365, Azure and Dynamics 365 not only makes Microsoft the largest cloud platform in the world, but also ranks it as one of the fastest-growing among its Cloud Titan peers.”

It would be surprising if the company didn’t deliver the goods. The biggest thing current and prospective MSFT stockholders may have to fear is a marketwide bearish tide that doesn’t let anyone see that Microsoft is a standout.

That’s certainly not a concern to dismiss, of course.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/04/3-things-microsoft-investors-need-scrutinize-thursdays-close/.

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