Microsoft Earnings Preview: What Will Matter Most

Today, the Apple Maven looks around the FAAMG group to preview Microsoft’s earnings report. Expect the company to beat consensus, as usual, supported by cloud and personal computing.
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First quarter earnings season is upon us. Here at the Apple Maven, we focus primarily on the Cupertino company and its stock. But today, we look around the FAAMG group to preview what investors should expect of Microsoft, a key Apple peer.

The Apple Maven will provide live blog coverage of Microsoft’s earnings on Tuesday, January 26, after the closing bell.

What Wall Street expects

First, let’s take a peek at what analysts have been saying about Microsoft. According to Stock Rover, the consensus opinion is that Microsoft is a strong buy, with virtually all research shops agreeing on the bullish rating (see chart below).

Median price target on the stock is currently $249 per share. At these levels, Microsoft would have 17% upside potential.

For the first calendar quarter of 2021, which is Microsoft’s second fiscal period, Wall Street projects revenues to grow 9% year-over-year. This is roughly in line with the company’s guidance provided in October.

But judging by history alone, top line increase in the single digits might prove to be conservative. The norm of the past twelve quarters has been 12%, at the very least.

Projected earnings per share is set at $1.64. If achieved, this would represent a modest bottom-line climb of less than 9%, which is also in line with Microsoft’s guidance – give or take a penny or two.

The Apple Maven’s view

Microsoft is known for promising little and delivering well beyond its outlook. The last time that the company failed to beat consensus estimate on earnings was all the way back in early 2016. Therefore, do not be surprised to see another better-than-expected set of numbers this time.

As usual, Microsoft’s cloud infrastructure business will be a top-of-mind subject of discussion. Azure is the company’s crown jewel, a business that has been growing at a dizzying 40%-plus pace for several years.

However, given the pandemic and recent trends in cloud adoption, it is likely that some cloud revenues were pulled forward in 2020. For instance, Azure growth in fiscal second quarter of last year accelerated for the first time since 2018.

This being the case, cloud infrastructure might look a bit less impressive than it did in the first half of last year, which sometimes triggers bearish reaction after earnings day.

The segment that is most likely to “wow” in the holiday quarter is personal computing. Think about IDC’s recent report. The research company shared data on PC shipments in the fourth calendar quarter, and the numbers impressed. Microsoft is likely to be one of the beneficiaries.

Also keep in mind that 2020 was the long-awaited refresh year for the Xbox gaming console. I expect video game sales to climb strongly this time, and to be one of the main drivers of total company revenue growth.

Twitter speaks

I am currently running a poll on Twitter to find out: what will be the highlight of Microsoft’s earnings report this month? Leave your opinion below!

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Explore more data and graphs

The graph used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.

To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that I have will give you access to all the information that went into my analysis and much more.

(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)