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Microsoft (MSFT) to Report Q2 Earnings: What's in the Cards?

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·5 min read
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Microsoft MSFT is set to report second-quarter fiscal 2022 results on Jan 25.

The Zacks Consensus Estimate for revenues is pegged at $50.32 billion, implying growth of 16.82% from the figure reported in the year-ago quarter.

The consensus mark for earnings has stayed at $2.29 per share over the past 30 days, suggesting 12.81% growth from the figure reported in the year-ago quarter.

Microsoft’s earnings beat the Zacks Consensus Estimate in all of the trailing four quarters, the average surprise being 14.75%.

Microsoft Corporation Price and EPS Surprise

Microsoft Corporation Price and EPS Surprise
Microsoft Corporation Price and EPS Surprise

Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote

Let’s see how things have shaped up for the upcoming announcement:

Teams Momentum to Aid Growth

Continued strength in its cloud computing platform, Azure, is expected to have positively impacted the company’s fiscal second-quarter numbers. Azure is witnessing rapid adoption owing to the accelerated digital transformation by business enterprises globally.

Momentum witnessed for Teams, Microsoft’s workspace communication offering, might have acted as a tailwind. Teams’ user growth is expected to have been driven by continuation of remote work and mainstream adoption of hybrid/flexible work model.

Microsoft noted that Teams has 138 customers, with more than 100,000 users of Teams and more than 3,000 clients with over 10,000 users at the end of fiscal first quarter.

The integration of Teams with Microsoft’s various in-house offerings — SharePoint, PowerPoint presentations, Stream, Dynamics 365 — is a game-changer. These integrations enable easy collaboration and engagement while driving outcomes and saving time.

During the to-be-reported quarter, Microsoft introduced Teams Essentials, an online meetings and collaboration solution, mainly designed to meet the requirements of small-scale businesses.

Teams’ expanding customer base and features are actually helping Microsoft win share in the enterprise communication market against Zoom ZM.

Markedly, at the end of third-quarter fiscal 2022, Zoom had roughly 512,100 customers (with more than 10 employees), up 18% year over year. Zoom had 2,507 customers with more than $100,000 in trailing 12-month revenues, up roughly 94% year over year.

Solid uptick in Teams and strong Azure demand instill investors’ confidence in Microsoft, which currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Microsoft have returned 34.1% in the past year against Zoom’s plunge of 59.3%.

PC Shipment Decline to Have Hurt Top Line

Revenues from Windows are likely to have been driven by steady traction seen in Windows Commercial products and cloud services growth amid weak PC demand.

Per Gartner data, 88.4 million PCs were shipped during the fourth quarter, down 5% from the year-ago period. The latest Gartner report depicts the end of the massive spike in PC demand due to the pandemic-led work-from-home and online-learning waves.

Ongoing supply chain constraints and a decline in demand for Chromebooks were cited as the main reasons behind the decline in PC shipments during fourth-quarter 2021.

More importantly, Microsoft’s nearest competitor, Apple AAPL, was the sole PC manufacturer that registered year-over-year growth in the U.S. market.

During the October-December quarter, Apple delivered approximately 2.69 million units, 6.7% higher than the year-ago period. In terms of overall market share, Apple grabbed the fourth position, trailing Dell Technologies DELL.

While Apple had a market share of 7.7%, Dell registered a market share of 19.5%. Moreover, Dell’s PC sales improved 7.9% year over year to 17.2 million units, while Apple witnessed an increase of 6.2% to 6.85 million units.

Microsoft expects Surface revenues to decline in the single digits on a year-over-year basis due to supply chain disruptions.

During the to-be-reported quarter, Microsoft unveiled a new array of Surface products, including a new dual-screen smartphone — Surface Duo 2. Microsoft introduced a new Surface Laptop Studio as well as redesigned versions of two-in-one laptops Surface Pro 8 and Surface Go 3, along with updates to Surface Pro X.

Microsoft expects fiscal second-quarter Windows commercial products and cloud services revenues to grow in the low double-digit range, driven by demand for Microsoft 365 and advanced security solutions.

Strong upsell opportunities for Microsoft E5 and momentum in Microsoft 365 are expected to have contributed to growth in Office commercial. High adoption of Dynamics 365 is likely to boost revenues from Dynamics products and cloud services business.

Search and LinkedIn revenues are anticipated to have been driven by increasing advertising demand and an improving job market scenario.

Microsoft’s gaming segment is likely to benefit from increases in adoption of Game Pass subscription service and Xbox Live monthly active users. Gaming revenues are anticipated to be up in high-single digits marred by tougher year-over-year comparisons.

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