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Factors Setting the Tone for Microsoft's (MSFT) Q2 Results

Zacks Equity Research

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

The Zacks Consensus Estimate for fiscal second-quarter earnings is pegged at $1.32 per share, indicating an improvement of 20% from the year-ago quarter’s reported figure. The estimate has been unchanged over the past 30 days.

The Zacks Consensus Estimate for revenues stands at $35.69 billion, suggesting growth of 9.9% year over year.

Notably, the company has a positive earnings surprise of 9.64%, on average, for the trailing four quarters. In the last reported quarter, Microsoft delivered a positive earnings surprise of 10.4%.

Factors Likely to Have Influenced Q2 Performance

Momentum in Microsoft’s cloud computing platform — Azure — is likely to have contributed to the fiscal second-quarter performance.

Microsoft Corporation Price and EPS Surprise

 

Microsoft Corporation Price and EPS Surprise

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Furthermore, the company has been strengthening Office 365 and Dynamics 365 suite of solutions to boost enterprise productivity. The launch of HoloLens 2 and Azure Kinect DK, and the acquisition of Mover remain crucial in this regard. These initiatives are expected to have driven subscriber base, which, in turn, is likely to have aided the fiscal second-quarter performance.

Moreover, Microsoft is striving to enhance the LinkedIn platform with robust AI, CRM capabilities at different levels, while maintaining user data privacy preferences. This is expected to have bolstered the adoption of LinkedIn’s subscription products, comprising membership, recruitment and education programs, which is likely to have favored top-line growth in the quarter under review.

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.

Further, a seasonal uptick on holiday season and an improving PC shipment trend in the fourth quarter of 2019 are likely to have generated incremental revenues from Surface devices, in the quarter under review.

However, higher investments in cloud and AI engineering, LinkedIn, and GitHub amid stiff competition from Amazon AMZN and Google in the cloud computing vertical are likely to have limited margin expansion in the fiscal second quarter.

Noteworthy Initiatives Undertaken in Q2 to Enhance Azure

Microsoft unveiled the latest capabilities to IoT Central, Azure IoT Hub and Azure Maps, with an aim to deliver advanced IoT solutions with robust security capabilities. Moreover, the acquisition of Movere is expected to enhance Azure’s cloud-migration solution, Azure Migrate.

These new capabilities are likely to have bolstered the adoption of Azure, consequently contributing to the top line in the fiscal second quarter.

In fact, the company won a 10-year Joint Enterprise Defense Infrastructure (JEDI) project touted to be worth $10 billion from the Department of Defense.

Moreover, the latest Azure-focused deals, including partnerships with Nuance Communications NUAN, Baker Hughes BKR and C3.ai, and KPMG, deserve a special mention.

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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