Microsoft (MSFT) to Report Q1 Earnings: What's in the Offing?

Microsoft Corporation MSFT is set to report first-quarter 2021 earnings results on Oct 27, after market close. The pandemic-led remote working trend is likely to have boosted demand for Microsoft’s products, especially Azure cloud computing. Additionally, several alliances, acquisitions and team ups are expected to have boosted the company’s overall revenues.

Cloud Computing to Remain Core

In the preceding quarter, Microsoft’s Intelligent Cloud unit revenues rose 17% and Azure rose 47%. However, Azure needs to beat, Inc.’s AMZN Amazon Web Services (AWS) to get to the top position. Meanwhile, the coronavirus pandemic has ensured a brighter future for cloud computing as millions continue to work from home. Thus, Microsoft will continue to witness strong demand for key products and services.

Microsoft has also collaborated with network providers to help in digital transformation of businesses. In September, Microsoft teamed up with AT&T to help businesses connect machines and equipment to the cloud through a highly secure network across the globe. As part of the venture, AT&T can deliver Microsoft’s integrated IoT solution with Azure Sphere, to help businesses transform their operations, through massive IoT deployments at scale. AT&T’s global SIM enables connectivity in more than 200 countries with more than 500 carriers. This multi-year alliance has not only benefited Microsoft in first-quarter 2021but will also enable the company to offer new 5G, cloud and edge computing solutions in the future.

In the to-be-reported quarter, Microsoft’s cloud segment also ventured into the banking space. In August, the company announced athree-year strategic partnership with Standard Chartered Bankto accelerate the bank's digital transformation through a cloud-first strategy. By adopting this multi-cloud approach, Microsoft aims to make Standard Chartered’s core banking and trading systems and other servers cloud-based by 2025, subject to regulatory approvals. Microsoft’s Azure cloud platform will help both companies co-innovate in open banking and real-time payments and make banking experience easier for clients.

What’s More?

The pandemic pushed demand for stay-at-home products and services in the to-be-reported quarter. Microsoft Teams’ “Together Mode” enabled employees to work seamlessly from home amid the pandemic, posing tough competition to video conferencing companies like Zoom Video Communications, Inc. ZM and Slack Technologies, Inc. WORK.

The telehealth and online learning wave drove demand for Microsoft Teams and Azure. In September, Microsoft integrated Microsoft Teams with an ambient clinical intelligence (ACI) solution to boost telehealth consultancy experience for doctors and patients. This enhanced feature is expected to have brought in additional revenues for Microsoft Teams in the to-be-reported quarter.

With stay-at-home orders in place, Microsoft’s gaming unit is expected to witness a surge in demand. The Xbox content and services revenue increased 65% in the previous quarter and is expected to return higher in the to-be-reported quarter. Additionally, the $7.5-billion cash acquisition of ZeniMax Media increases Microsoft’s hold in the gaming industry. Gaming has become one of the largest and fastest-growing forms of entertainment globally, due to the pandemic. And, the video games industry is expected to exceed $200 billion in value in 2023 from an estimated worth of $155 billion in 2020. This boom in the gaming industry also drove demand for Microsoft’s gaming units and cloud gaming technology in the to-be-reported quarter.

Summing Up

During first-quarter fiscal 2021, while the pandemic was wreaking havoc for the global economy, Microsoft thrived as remote working and learning practices boosted demand for its products and services. Microsoft’s products and services were essential to businesses, students, and others and made its place despite strong competition from Amazon and Alphabet Inc. GOOGL. The technology giant’s shares have gained 33.2% so far this year compared with the S&P 500’s rise of 5.3%.

The Zacks Consensus Estimate for Microsoft’s first-quarter fiscal 2021 earnings is pegged at $1.53 per share, suggesting improvement from year-ago earnings of $1.38. The Zacks Consensus Estimate for sales is pinned at $35.67 billion. It reported $33.06 billion in revenues in the year-ago quarter. The company’s expected earnings growth rate for the current quarter is 10.9% compared with the Zacks Computer - Software industry’s projected earnings growth 1.4%. Microsoft also has an average earnings surprise of +10.21%.

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

According to the Zacks model, the combination of a positive Earnings ESP and Zacks Rank #1, 2 or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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Microsoft Corporation (MSFT): Free Stock Analysis Report, Inc. (AMZN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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