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Momentum in Azure Cloud to Aid Microsoft (MSFT) Q1 Earnings

·5-min read

Microsoft MSFT is scheduled to report first-quarter fiscal 2022 results on Oct 26.

The company’s quarterly numbers are likely to have been driven by the continued strength in its cloud platform — Azure. The platform has been benefiting from the pandemic-led digital transformation across the globe.

For the fiscal first quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) between $16.4 billion and $16.65 billion. Azure's revenue growth is likely to reflect continued strength in the consumption-based services.

The Zacks Consensus Estimate for the Intelligent Cloud segment revenues is currently pegged at $16.6 billion, indicating growth of 27.5% from the year-ago quarter’s levels.

Azure’s increased availability in more than 60 announced regions worldwide is anticipated to have bolstered its cloud business and strengthened its competitive position against Amazon’s AMZN Amazon Web Services and Alphabet’s GOOGL Google cloud.

Microsoft Corporation Revenue (Quarterly)

Microsoft Corporation Revenue (Quarterly)
Microsoft Corporation Revenue (Quarterly)

Microsoft Corporation revenue-quarterly | Microsoft Corporation Quote

In fourth-quarter fiscal 2021, the company noted that it opened new data center regions in 15 countries in the past year to provide faster access to cloud services and enable easier compliance with data residency requirements.

Steady traction in Azure Syapse, the Azure Communications Services platform, Azure Kubernetes Services and Azure Cognitive offerings are anticipated to have acted as a tailwind. Also, businesses are increasingly utilizing Azure to run SAP’s critical workloads including Enterprise Resource Planning bodes well.

Azure revenues rose 45% at constant currency on a year-over-year basis in the last reported quarter.

Click here to know how the company’s overall fiscal first-quarter performance is expected to have been.

Teams to Gain From Hybrid Work Model

The increasing implementation of the hybrid work model is expected to have boosted the adoption of the company’s video conferencing app — Teams.

The tech giant continues to add features to the app to make it more attractive for enterprise customers. Microsoft integrated Teams with various inhouse offerings like SharePoint, PowerPoint presentations, Stream and Dynamics 365. At the end of the last reported quarter, Microsoft’s Teams app had 250 million monthly active users.

Increasing competition from the likes of Zoom Video ZM and Webex in the video conferencing domain is expected to have acted as a headwind.

LinkedIn business is likely to have gained from recovering job and advertising markets. Microsoft expects LinkedIn revenues to be in the high-30% for the fiscal first quarter.

High adoption of Dynamics 365 is likely to boost revenues from Dynamics products and cloud services business. Revenue growth for Dynamics is expected to be high-20% driven by continued Dynamics 365 momentum, noted the software giant.

Healthy uptick seen for Microsoft Power Platform is likely to have contributed to the top line in the quarter to be reported. Power platform, the company’s next-generation business process automation platform, reported revenue growth of 83% year over year for fiscal 2021.

Strong upsell opportunities for Microsoft E5 and momentum in Office 365 are expected to have driven growth in Office commercial.

The company has been integrating machine learning (ML) and artificial intelligence (AI) capabilities in its Microsoft 365 offerings to augment productivity, which is expected to have driven its adoption rate.

Gains from Microsoft 365 suite adoption is expected to boost growth in per-user business. However, the company noted that it was expecting some moderation in growth given the large size of the installed base.

For the fiscal first quarter, Microsoft expects Productivity and Business Processes revenues between $14.5 billion and $14.75 billion.

The Zacks Consensus Estimate for revenues for the Productivity and BusinessProcesses segment is currently pegged at $14.7 billion, indicating a year-over-year improvement of 19.3%.

However, the software giant expects on-premises business to decline 20% due to customers’ shift to cloud.

Personal Computing to Stay Strong

Microsoft expects More Personal Computing revenues (comprising Windows, Gaming, Devices and Search businesses) between $12.4 billion and $12.8 billion. This includes a $300-million estimated impact of revenue deferral of Windows 11.

The tech giant expects gaming revenues to be up in low double digits year over year. Higher adoption of Game Pass subscriptions on higher engagement levels are likely to have positively impacted the gaming business.

Microsoft noted that Xbox content and services revenues are projected to increase in the low single digits range owing to tougher year over year comparisons. Demand for Xbox Series X and S will continue to be negatively impacted by supply issues.

Continued strength in PC shipments in the third quarter of calendar year 2021 is likely to have contributed to the company’s More Personal Computing segmental performance in the fiscal first quarter. Per an IDC report, PC shipments rose 3.9% year over year to 86.7 million units in the third quarter of calendar year 2021. However, supply chain constraints, component shortages and logistics bottlenecks witnessed globally are likely to have acted as headwinds.

Revenues from Surface devices in the to-be-reported quarter are likely to have been affected by the supply chain troubles and anticipated to decline in the low-teens range on a year-over-year basis, added the tech giant.

Windows commercial products and cloud services are expected to grow in double-digit range driven by demand for Microsoft 365 and advanced security solutions. The company expects overall Windows OEM revenues to decline in the mid to high-single digits range.

The company anticipates search advertising revenues, excluding traffic acquisition costs to grow in the high-30% on the recovering advertising market.

The Zacks Consensus Estimate for revenues for the More Personal Computing segment is currently pegged at $12.7 billion, indicating growth of 6.9% on a year-over-year basis.

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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