Microsoft dips on weak revenue guidance

Earnings

Satya Nadella, CEO of Microsoft, is pictured at Microsoft’s annual shareholder meeting in Bellevue, Washington on November 30, 2016.

Jason Redmond | AFP | Getty Images

Microsoft will announce its fiscal first-quarter earnings after market close on Tuesday.

Here are the numbers to watch:

  • Earnings: $1.54 per share, adjusted, as expected by analysts, according to Refinitiv.
  • Revenue: $35.72 billion as expected by analysts, according to Refinitiv.

That means analysts expect Microsoft’s revenue to be up 8% on an annualized basis, down from 13% growth in the prior quarter. Some of Microsoft’s fastest growth comes from its Azure public cloud, which companies can use to host websites and applications and competes with Amazon Web Services. Analysts expect Azure growth to slow slightly to about 44% from 47% in the previous quarter.

Microsoft is also likely to give insight into the business impact from the Nov. 10 release of new Xbox consoles.

This is the first quarter Microsoft will benefit from an accounting change that extended the useful life of its server equipment from three years to four years. That adjustment could lift Microsoft’s gross margin while some parts of Microsoft, such as LinkedIn and search advertising, experience slowdowns — in some cases because of the coronavirus pandemic. Microsoft is also expected to receive less revenue growth from companies upgrading Windows and Windows Server after the company ended support for older versions.

“With most of this benefit expected to be absorbed in Commercial Cloud, we think the accounting changes will buttress continued margin expansion in FY21, addressing one of the main concerns investors had coming into the new fiscal year, considering the headwinds from the lower margin console cycle and as we lapse the tailwinds previously felt in the higher-margin Server & Tools and Windows OEM segments,” Morgan Stanley analysts Keith Weiss and Josh Baer, who have the equivalent of a buy rating on Microsoft stock, wrote in a note distributed to clients earlier this month.

With respect to guidance, analysts polled by Refinitiv are expecting $40.43 billion in fiscal second-quarter revenue, which implies 9.5% growth.

In the quarter Microsoft announced the $7.5 billion acquisition of Zenimax Media, the company behind video game franchises such as Doom and Quake, and Microsoft failed to make a deal involving the video-sharing app TikTok.

In January Microsoft announced a goal to be carbon-negative, which would involve removing more carbon than it emits, by 2030. In the fiscal first quarter Microsoft provided an update, saying it had extended an internal carbon tax to all parts of its operations and updated its code of conduct for suppliers so that suppliers will have to specify their emissions.

The company will give guidance and discuss the quarter’s results on a conference call with analysts starting at 5:30 p.m. Eastern time.

Microsoft shares are up about 36% since the start of 2020, while the S&P 500 is up 5% over the same period.

This is breaking news. Please check back for updates.

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