Microsoft's (MSFT) - Get Report fiscal second quarter is expected to show more of the same from the first quarter -- CEO Satya Nadella's plan to position Microsoft everywhere, especially in the cloud, is working at a steady pace.
The tech giant's quarterly report is due out Thursday after the close. In the first quarter, which ended Sept. 30, Microsoft earned an adjusted 67 cents per share on $21.66 billion in revenue, beating Thomson Reuters consensus estimates of 59 cents per share on $21.03 billion.
Microsoft noted that revenue from its intelligent cloud unit rose 8% year over year to $5.9 billion. Microsoft Azure, its competitor to Amazon (AMZN) - Get Report Web Services, continued to show strength, with revenue more than doubling year over year.
On the other hand, Microsoft's computing business saw some weakness. Its productivity and business processes revenue fell 3% to $6.3 billion, while personal computing revenue dropped 17% to $9.4 billion.
Analysts surveyed by Thomson Reuters expect the company to earn an adjusted 71 cents a share on $25.25 billion in the second quarter.
Investors will be looking to hear how the Azure platform is performing, as well as about how key areas of growth such as Office 365, Windows 10 and its Surface hardware are performing.
Here's what five of the top Wall Street analysts expect from Microsoft:
Morgan Stanley analyst Keith Weiss (Overweight, $66 price target)
"Microsoft enters CY16 with 1) strong top-line drivers, including Azure (Microsoft emerging as a public cloud winner), data center (share gains and positive pricing trends), and Office 365 (base growth and per user pricing lift), 2) less risk from Windows OEM and Nokia businesses, 3) improving gross margins in the cloud businesses, and 4) continued opex discipline, which helps expand operating margins each year through FY18 -- after five years of declines.
"Aggressive share repurchases and dividend growth, coupled with a ~10% FY15-FY18e EPS CAGR, push Microsoft's total return profile to ~13%, a significant premium to the S&P 500's total return of ~8%. At ~16x CY17e EPS, Microsoft trades relatively in line with the S&P 500, despite Microsoft's premium total return profile."
RBC Capital Markets analyst Ross MacMillan (Outperform, $65 price target)
"We view the set up for F2Q16 as positive, but are lower than Street revs in F2H16/ in-line on EPS. We think EPS matters more and so remain positively biased. The key near-term question is gross margins, given changing mix, but we still think gross profit dollars can start to
Jefferies analyst John DiFucci (Underperform, $39 price target)
"Given tepid data points in the PC sector, we think expectations are relatively muted for both December quarter results and March quarter guidance. Additionally, historically Windows has suffered the quarter after a new product launch given the channel inventory build (MSFT sells to the channel), although these effects may be more muted than the past given the free Windows 10 upgrade dynamic.
"Beyond this, we believe management and investors will likely focus on Microsoft's cloud efforts; as we expect the company to post continued solid momentum in Cloud, including Office 365, Azure, and Commercial Cloud (which includes the Azure and O-365 plus Dynamics CRM Online).
"We have reduced our estimates for MSFT ahead of earnings to account for the latest forecasts from both IDC and Gartner, which expect y/y PC shipments to be down 10.4% and 7.4%, respectively. Our FY16 revenue estimate is lowered from $93.847 billion to $92.692 billion. We are also showing our estimates for the company's new segments for the first time, and we will be releasing a more comprehensive model including an in depth analysis of revenue drivers in the near future."
Pacific Crest Securities analyst Brendan Barnicle (Overweight)
"Feedback from resellers was very positive, increasing our confidence that Microsoft can beat FQ2 (Dec.) consensus expectations. In particular, resellers report strength in Office 365, Azure and Windows 10. Windows 10 benefited from year-end enterprise spending.
"While we recently lowered estimates for 2H16, consensus expectations seem low enough for FQ3 (March), so we see less risk to lower guidance than in the past few quarters. Given Microsoft's cost discipline, there could be upside to EPS expectations. More importantly, EPS could grow in 2016."
Deutsche Bank analyst Karl Keirstead (Buy, $65 price target)
"We continue to estimate that Azure was at a $1.4b revs run-rate in the 1QF16 quarter, is running at a material loss and is ramping at a 100%+ y/y clip. The overall cloud revs story at MSFT shows no signs of slowing, but it does carry lower overall GMs and the resulting mix shift does pressure overall GMs. To better reflect this, we're trimming our FY16 adjusted EPS estimate slightly to $2.65 from $2.72 and FY17 adjusted EPS estimate to $3.06 from $3.13.
"While the recent INTC print didn't alter our (already conservative) Windows OEM revs estimates, INTC's deceleration in server chip (Data Center) revs growth reinforced our view that on-premise IT infrastructure spending remains under pressure. This isn't good for any IT infrastructure supplier (including MSFT), but our CIO checks still indicate that MSFT is gaining wallet share of enterprise IT budgets."