Microsoft (MSFT) 1st Quarter Earnings: What to Expect

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Despite Monday’s dip, tech stocks, particularly software, have powered the stock market since March lows. The shift to remote work has forced corporations to increase spending not only on cloud computing, but also on ways to accelerate their digital transformation to stay competitive.

Few companies have benefited from this shift more than Microsoft (MSFT) which has seen its shares surge to near all-time highs with year-to-date return of 40%. The software giant is set to report first quarter fiscal 2020 earnings after the closing bell Tuesday. Due to the work-from-home shift, cloud platforms such as Microsoft’s Azure have experienced a significant surge in demand evidenced by the strong Q4 performances in the company’s Productivity and Business and Intelligent Cloud segments. But for how long can the growth continue?

Microsoft’s cloud success, namely its Commercial Cloud business, which in recent years has helped drive revenue and earnings growth, is expected to be on display again this quarter. On Tuesday investors will want to see some evidence that Azure can continue to outgrow Amazon’s (AMZN) AWS, and also that the rise of Microsoft’s Teams collaboration suite (a Zoom (ZM) competitor) can continue to propel the company’s shift towards enabling remote work.

Last quarter Azure revenue was up 50% year over year — a slight deceleration from the 61% growth in Q3. Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, driven by Azure's momentum. But for the stock to keep powering higher, Microsoft not only will need to extend its strong execution track record, it must also provide strong guidance for the next quarter and fiscal year.

For the quarter that ended September, the Redmond, Wash.-based tech giant is expected to earn $1.54 per share on revenue of $35.72 billion. This compares to the year-ago quarter when earning were $1.38 per share on $33.05 billion in revenue. For the full year, ending June 2021, earnings are projected to rise 12% year over year to $6.45 per share, while full-year revenue of $156.84 billion would mark a year-over-year increase of 9.7%.

Microsoft shares fell as much as 5% last quarter even after the company reported better-than-expected Q4 results that topped analysts’ expectations. Q4 adjusted EPS of $1.46 easily beat the $1.34 per analysts expected. Likewise, Q4 revenue of $38.03 billion which grew 13% year over year, topped the $36.50 billion analysts were looking for. Notably, the Intelligent Cloud business segment, which includes the Azure, rose 17% year over year, topping estimates.

But Azure revenue growth slowed sequentially to 47% from 59%, sparking questions whether the pandemic had some impact on Microsoft’s business, particularly with the company guiding for Q1 revenue slightly lower than expected. Nevertheless, Microsoft’s commercial cloud business has now surpassed $50 billion in revenue for the fiscal year, which suggests Microsoft’s overall cloud strategy is working on multiple fronts. As long as these trends remains strong on Tuesday, the stock will do well.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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