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Microsoft Q4 Earnings: Office, Azure & Gaming in Spotlight

Zacks Equity Research

Microsoft Corporation MSFT is set to report fourth-quarter 2019 results on Jul 18.

The company’s fourth-quarter results are likely to benefit from enterprise strength, robust Office 365 & Azure adoption. Further, its blockchain deals, gaming segment and acquisition synergies are likely to act as a key catalyst in the to-be-reported quarter.

Robust performance of LinkedIn’s subscription products comprising membership, recruitment and education programs also remain key catalysts. In the last reported quarter, LinkedIn revenues surged 27% from the year-ago quarter (up 290% at cc).

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

Microsoft Corporation Price and Consensus

 

Microsoft Corporation Price and Consensus

Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote

Segmental Highlights

For fourth-quarter 2019, Productivity and Business Processes revenues are expected between $10.55 billion and $10.75 billion, driven by double-digit growth in Dynamics. Office commercial revenues are anticipated to be slightly down sequentially owing to growth in Office 365, which is likely to be partially offset by consumer PC market headwinds.

The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at almost $10.71 billion, higher than $9.67 billion reported in the year-ago reported quarter.

Microsoft is benefiting from growing user base of its different applications like Microsoft 365 and Teams. Both solutions continue to witness strong adoption. Microsoft 365 has been chosen by the likes of National Bank of Canada, BNP Paribas, Refinitiv — a joint venture between Thomson Reuters and Blackrock in recent times. Microsoft Teams is now utilized by more than 150 organizations having over 10,000 active users, including 91 of the Fortune 100.

The momentum is expected to continue in the to-be-reported quarter.

Intelligent Cloud revenues (including GitHub) are anticipated between $10.85 billion and $11.05 billion. Azure's revenue growth is likely to reflect continued strength in the consumption and per-user based services

The Zacks Consensus Estimate for revenues for the Intelligent Cloud segment is currently pegged at almost $11 billion, higher than $9.61 billion reported in the year-ago reported quarter.

The addition of new capabilities to Azure with focus on existing workloads like security, IoT and Edge AI is likely to benefit the company’s results in to-be reported quarter.

More Personal Computing revenues are expected between $10.8 billion and $11.1 billion, with a shift in revenue mix to Surface and gaming businesses. Gaming revenues are anticipated to be down year over year owing to unfavorable hardware trends.

The Zacks Consensus Estimate for revenues for the More Personal Computing segment and Gaming are currently pegged at almost $10.99 billion and $2.17 billion, respectively.

Recently, the company introduced Game Stack with an aim to provide developers with a comprehensive platform, enabling them to design, test, publish and monetize on engaging games.

Additionally, bundling new Surface devices sales with Office 365 is a smart move and anticipated to bolster Office 365 adoption.

Microsoft is leaving no stone unturned to enhance gaming business by making it as inclusive as possible with ongoing initiatives. Notably, gaming is now evolving from console to cloud-based platforms. In this regard, expanding the option of devices is noteworthy.

Moreover, the company is consistently integrating cloud capabilities of Azure into its gaming segment. This is facilitating the company to innovate gaming domain beyond exclusive gaming content on X-box consoles.

Consequently, higher adoption of Xbox Game Pass for PC service is expected to drive gaming revenues growth in the to-be-reported quarter.

Zacks Rank & Key Picks

Microsoft currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the broader sector are Lattice Semiconductor Corporation LSCC, Alteryx AYX and Rosetta Stone RST, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Lattice Semiconductor, Alteryx and Rosetta Stone is pegged at 12.5%, 13.7% and 12.5%, respectively.

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