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Will Azure & Office 365 Drive Microsoft's (MSFT) Q2 Earnings?

Zacks Equity Research

Microsoft MSFT is slated to report second-quarter fiscal 2020 results on Jan 29.

The tech giant is leaving no stone unturned to enhance capabilities of its cloud computing service — Azure, which is likely to have contributed to the fiscal second-quarter performance.

Notably, Azure revenues soared 63% at constant currency on a year-over-year basis in the last reported quarter.

For the fiscal second quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under this segment) between $11.25 billion and $11.45 billion.

The Zacks Consensus Estimate for revenues for the Intelligent Cloud segment is currently pegged at $11.409 billion, indicating growth of 21.7% from the year-ago quarter.

In fact, the company won a 10-year Joint Enterprise Defense Infrastructure (JEDI) project from the Department of Defense, which is touted to be worth $10 billion. Moreover, the latest Azure-focused deals, including partnerships with Nuance Communications NUAN, Baker Hughes and C3.ai, and KPMG, are likely to reflect in Azure’s financial performance.

Markedly, latest deal wins and Azure’s increased availability in 55 regions globally, are expected to aid Microsoft to strengthen its competitive position in the cloud computing market, dominated by Amazon’s AMZN Amazon Web Services.

Click here to know how the company’s overall Q2 performance is expected to be.

Robust Office 365 Adoption Remains Noteworthy

Microsoft is incorporating AI capabilities in its Office 365 solutions, which is likely to have bolstered adoption rate. This is also likely to have aided the company to catch up with Alphabet’s GOOGL G-Suite.

Notably, Office 365 is a subscription plan to access Office applications and other productivity services utilized in cloud services.

Markedly, Office 365 Consumer subscribers in the trailing four quarters have grown consistently, from 33.3 million to 35.6 million. We expect momentum in Office 365 Consumer subscribers, to have continued in the to-be-reported quarter.
 

Microsoft Corporation Revenue (Quarterly)

Moreover, LinkedIn is growing faster than previously anticipated, which is expected to have bolstered Productivity and Business Processes revenues.

For fiscal second-quarter, Microsoft expects Productivity and Business Processes revenues between $11.3 billion and $11.5 billion, driven by double-digit growth in Dynamics, Office commercial and LinkedIn.

The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at $11.423 billion, indicating an improvement of 13.1% from the prior-year quarter.

Holiday Season Sales to Aid Top Line

A seasonal uptick on holiday season and an improving PC shipment trend in fourth-quarter 2019 are likely to have generated incremental revenues from Surface devices. This, in turn, will aid the to-be-reported quarter’s performance.

Moreover, momentum in the latest Surface Pro and Surface laptop devices is likely to have contributed to the top-line.

Microsoft expects More Personal Computing revenues (comprising Windows, Gaming, Devices and Search businesses) between $12.6 billion and $13 billion. The company expects OEM revenues to grow sequentially backed by robust commercial demand. Nevertheless, Gaming revenue is anticipated to be down year over year, thanks to declining console sales.

The Zacks Consensus Estimate for revenues for the More Personal Computing segment is currently pegged at $12.847 billion, indicating a decline of 1.1% on a year-over-year basis.

Zacks Rank

Currently, Microsoft has a Zacks Rank #3 (Hold).

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

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Click to get this free report Amazon.com, Inc. (AMZN) : Free Stock Analysis Report Alphabet Inc. (GOOGL) : Free Stock Analysis Report Nuance Communications, Inc. (NUAN) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research