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Will Work-From-Home Push Drive Microsoft (MSFT) Q4 Earnings?

Microsoft MSFT is scheduled to report fourth-quarter fiscal 2020 results on Jul 22.

The tech giant has been striving to enhance capabilities of its cloud computing service — Azure, which is likely to have bolstered its adoption. This, in turn, is likely to have contributed to the fiscal fourth-quarter performance.

In fact, during the quarter to be reported, Microsoft announced acquisition deals, including CyberX, ADRM Software, and Metaswitch Networks, in a bid to strengthen cloud-based capabilities and aid enterprises to accelerate digital transformation.

Moreover, the latest Azure-focused healthcare deals to combat coronavirus crisis, including partnerships with Adaptive Biotechnologies ADPT and UnitedHealth Group, deserve a special mention. Besides, during the fiscal fourth quarter, the tech giant announced Microsoft Cloud for Healthcare, marking its first industry-specific cloud solution.

Further, Azure’s increased availability in more than 60 announced regions globally is expected to have strengthened Microsoft competitive position in the cloud computing market, which is dominated by Amazon’s AMZN Amazon Web Services.

Notably, Azure revenues surged 61% at constant currency on a year-over-year basis in the last reported quarter. The momentum is likely to have continued in the quarter backed by coronavirus crisis-induced solid uptake in cloud computing solutions and digital transformation.

For the fiscal fourth quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under this segment) between $12.9 billion and $13.15 billion. Azure's revenue growth is likely to reflect continued strength in the consumption and per-user based services.

The Zacks Consensus Estimate for the Intelligent Cloud segment revenues is currently pegged at $13.104 billion, indicating growth of 15% from the year-ago quarter.
 

Microsoft Corporation Revenue (Quarterly)

Microsoft Corporation Revenue (Quarterly)

Microsoft Corporation revenue-quarterly | Microsoft Corporation Quote

Click here to know how the company’s overall Q4 performance is expected to be.

Work-From-Home Wave Driving Teams Uptake: A Key Catalyst

The tech giant is incorporating AI capabilities in its Microsoft 365 solutions to boost enterprise productivity, which is likely to have bolstered adoption rate. This is expected to have aided the company to compete with Alphabet’s GOOGL G-Suite.

Moreover, the company enhanced workspace communication offering, Teams, with a slew of new capabilities enabling users to work from home seamlessly in the wake of the coronavirus crisis.

These initiatives are expected to have driven subscriber base, which in turn is likely to have contributed to the fiscal fourth-quarter performance.

Teams has been witnessing a robust surge in usage courtesy of the coronavirus-induced work-from-home, stay-at-home, telehealth and online learning wave. Notably, Microsoft Teams reported more than 75 million daily active users in the fiscal third quarter, up from 20 million daily active users in the fiscal second quarter. Moreover, out of Fortune 100 companies, 93 have implemented Microsoft Teams.

Markedly, Office 365 Consumer subscribers in the trailing four quarters have grown consistently, from 34.8 million to 39.6 million. We expect momentum in subscribers to have continued in the to-be-reported quarter, backed by digital transformation in the industry triggered by coronavirus crisis-led work-from-home wave.

Increasing popularity of the company's products instill investor confidence in the stock. Notably, shares of Microsoft, currently carrying a Zacks Rank #3 (Hold), have returned 29.7% year to date, compared with the industry’s rally of 24.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



For fiscal fourth-quarter, Microsoft expects Productivity and Business Processes revenues between $11.65 billion and $11.95 billion, backed by low-double-digit growth in Dynamics, low-single-digit revenue growth in Office consumer and mid-single-digit revenue growth in LinkedIn. Weak job market and lower spend on advertising are likely to have weighed on LinkedIn and Search revenues.

The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at $11.682 billion, indicating an improvement of 7.4% from the prior-year quarter.

Improving PC Shipments & Solid Office Equipment Demand a Boon

Encouraging trend in PC shipments in the second quarter of calendar year 2020, driven by increased demand and improvement in the supply chain, is likely to have contributed to the company’s More Personal Computing segmental performance in the fiscal fourth quarter. Per Gartner’s preliminary data, PC shipments in second-quarter 2020 improved 2.8% year over year to 64.8 million units.

Moreover, work-from-home and stay-at-home induced online learning trends in the wake of coronavirus-led lockdown has been boosting demand for office equipment. This is likely to have generated incremental revenues from Surface devices in the to-be-reported quarter.

In the gaming segment, the tech giant is expected to have benefited from an increase in Xbox Live monthly active users and the adoption of Game Pass subscriptions as apprehensions regarding the second wave of coronavirus compel people to stay and home, in turn, triggering demand for online gaming solutions.

Microsoft expects More Personal Computing revenues (comprising Windows, Gaming, Devices and Search businesses) between $11.3 billion and $11.7 billion. The company anticipates OEM revenues to improve in “low to mid-single digits.”

Windows commercial products and cloud services revenues are expected to grow “mid-single digit” amid weakness in transactional business. Surface revenues are anticipated to increase in the “low-teens” year over year on strong demand. Search advertising revenues, excluding TAC are anticipated to decline “in the mid 20% range.” Meanwhile, Gaming revenues are anticipated to be up in the high-teens year over year on momentum in user engagement.

The Zacks Consensus Estimate for revenues for the More Personal Computing segment is currently pegged at $11.533 billion, indicating growth of 2.3% on a year-over-year basis.

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