Microsoft Corp. is scheduled to report fiscal fourth-quarter earnings after the market closes Thursday. Here’s what to expect.
EARNINGS: Analysts surveyed by S&P Global Market Intelligence expect Microsoft to report earnings of $1.08 a share. Microsoft no longer reports adjusted figures, reflecting accounting changes it adopted at the start of the fiscal year.
REVENUE: Analysts expect revenue of $29.23 billion, up from $25.61 billion a year earlier. The year-ago figure reflects the new accounting standard.
WHAT TO WATCH:
HELP FROM HYBRID: Microsoft has seen its fortunes climb in recent years from its growing cloud-computing business, and a big piece of its success comes from so-called hybrid cloud sales. That’s a business in which customers mix web-based, on-demand services with software running on servers in their own data centers. That has helped Microsoft to sell to existing customers already running its software on their servers, a pitch rivals that don’t have a legacy software business can’t make. “Hybrid cloud scenarios continue to resonate with customers and we remain quite bullish on Microsoft’s differentiated positioning,” Stifel Nicolaus & Co. analyst Brad Reback wrote in a recent research note. He expects revenue from server products and cloud services, the Microsoft reporting bucket that includes hybrid-cloud business, to have grown “in the high teens” in the quarter. Microsoft doesn’t disclose revenue, only percent change, for that category.
AZURE AND OFFICE: The engines of Microsoft recent growth have been its Azure cloud-computing services and its Office 365 online-productivity service for businesses. Analysts expect them to have continued to fuel last quarter’s results. RBC Capital Markets analyst Ross MacMillan estimated that the Azure business grew 92% in the quarter, while commercial Office 365 gained 36%. He sees potential for them to drive even greater gains for the company in the coming quarters as they become bigger parts of Microsoft’s overall operations. “As these businesses grow within the mix and as margins improve (especially in Azure), we expect revenue and gross profit growth to accelerate,” Mr. MacMillan wrote in a recent research note.
WINDOWS: In March, Microsoft split the engineering group that develops products under the Windows banner among two separate divisions, downgrading Windows’ role in the increasingly cloud-focused company as personal computer shipments have shrunk. But the last quarter saw the strongest showing of PC shipments in six years, according to market-research firms Gartner Inc. and International Data Corp. A key reason: Corporate buyers upgrading PCs to Windows 10 before support for Windows 7, which many still use, expires in January 2020. Credit Suisse analyst Brad Zelnick expects revenue in Microsoft’s More Personal Computing segment, which includes Windows, to grow 14% to $10.5 billion.
GITHUB: Microsoft announced plans to buy coding-collaboration siteGitHub Inc. for $7.5 billion in stock last month. The deal hasn’t closed. Morgan Stanley analyst Keith Weiss isn’t counting on the company to provide much detail about the acquisition in its earnings report or on the call with financial analysts. When the deal does close, it will likely add about $450 million in amortization expense, which should lead to roughly five-cents-a-share dilution in fiscal 2019, Mr. Weiss wrote in a recent note.