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Will Azure & Teams Adoption Aid Microsoft (MSFT) Q3 Earnings?
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Microsoft (MSFT - Free Report) is scheduled to report third-quarter fiscal 2020 results on Apr 29.
The tech giant has been striving to enhance capabilities of its cloud computing service — Azure, which is likely to have bolstered adoption. This, in turn, is likely to have contributed to the fiscal third-quarter performance.
During the quarter under review, Microsoft inked deal to acquire Affirmed Networks with an aim to gain advanced software and 5G edge computing capabilities to deliver enhanced cloud experience.
Further, Azure’s increased availability in 58 regions globally, is expected to have strengthened Microsoft competitive position in the cloud computing market, dominated by Amazon’s (AMZN - Free Report) Amazon Web Services.
Notably, Azure revenues surged 64% at constant currency on a year-over-year basis in the last reported quarter.
For the fiscal third quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under this segment) between $11.85 billion and $12.05 billion. Azure's revenue growth is likely to reflect continued strength in the consumption and per-user based services.
The Zacks Consensus Estimate for the Intelligent Cloud segment revenues is currently pegged at $12.002 billion, indicating growth of 24.4% from the year-ago quarter.
Click here to know how the company’s overall Q3 performance is expected to be.
Robust Uptick in Teams on Work-From-Home Wave: A Key Catalyst
The tech giant is incorporating AI capabilities in its Microsoft 365 solutions (revamped version of Office 365 software suite) to boost enterprise productivity, which is likely to have bolstered adoption rate. This is likely to have aided the company to compete with Alphabet’s (GOOGL - Free Report) G-Suite.
Moreover, the company enhanced its workspace communication offering, Teams, with a slew of new capabilities enabling users to work from home seamlessly, in the wake of the coronavirus crisis.
These initiatives are expected to have driven subscriber base, which in turn is likely to have contributed to the fiscal third-quarter performance.
Markedly, Teams has been witnessing a robust surge in usage owing to the coronavirus-induced demand. Notably, the company stated that Teams recently set a new daily record of 2.7 billion meeting minutes, up 200% from 900 million minutes on Mar 16. On Mar 19, Microsoft noted that Teams had 44 million daily active users (DAU). Moreover, out of Fortune 100 companies, 93 have implemented Microsoft Teams.
Increasing popularity of the company's products instill investor confidence in the stock. Notably, shares of Microsoft have returned 11% year to date, outperforming the industry’s rally of 4.5%.
Markedly, Office 365 Consumer subscribers in the trailing four quarters have grown consistently, from 34.2 million to 37.2 million. We expect momentum in subscribers to have continued in the to-be-reported quarter, backed by digital transformation in the industry triggered by coronavirus crisis-led work-from-home wave.
For fiscal third-quarter, Microsoft expects Productivity and Business Processes revenues between $11.5 billion and $11.7 billion, driven by double-digit growth in Dynamics, Office commercial and LinkedIn.
The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at $11.642 billion, indicating an improvement of 13.7% from the prior-year quarter.
Coronavirus-Led Supply Chain Disruption a Woe
On Feb 26, Microsoft announced that it does not expect to meet More Personal Computing third-quarter fiscal 2020 revenue guidance due to the coronavirus outbreak in China. The company had expected revenues between $10.75 billion and $11.15 billion.
Windows OEM and Surface business have been affected by supply chain disruption related to the coronavirus outbreak. Microsoft had expected OEM revenues to grow sequentially, backed by robust commercial demand for Windows 10. Moreover, Surface revenues were anticipated to improve slightly year over year.
Further, deteriorating trend in PC shipments in the first quarter, due to coronavirus crisis-induced supply constraints, is likely to have weighed on the company’s More Personal Computing segmental performance in the to-be-reported quarter. Per Gartner’s preliminary data, PC shipments in first-quarter 2020 declined 12.3% year over year to 51.6 million units.
However, work-from-home and stay-at-home trend in the wake of coronavirus-led lockdown has been boosting demand for office equipment. This is likely to have generated incremental revenues from Surface devices and limited the anticipated decline in the to-be-reported quarter.
In the gaming segment, the tech giant is expected to have benefited from an increase in Xbox Live monthly active users and the adoption of Game Pass subscriptions as lockdowns trigger demand for online gaming solutions.
The Zacks Consensus Estimate for revenues for the More Personal Computing segment is currently pegged at $10.669 billion, indicating a decline of 0.1% on a year-over-year basis.
Zacks Rank
Microsoft currently carries a Zacks Rank #3 (Hold).
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Will Azure & Teams Adoption Aid Microsoft (MSFT) Q3 Earnings?
Microsoft (MSFT - Free Report) is scheduled to report third-quarter fiscal 2020 results on Apr 29.
The tech giant has been striving to enhance capabilities of its cloud computing service — Azure, which is likely to have bolstered adoption. This, in turn, is likely to have contributed to the fiscal third-quarter performance.
During the quarter under review, Microsoft inked deal to acquire Affirmed Networks with an aim to gain advanced software and 5G edge computing capabilities to deliver enhanced cloud experience.
Moreover, the latest Azure-focused healthcare deals to combat coronavirus crisis, including partnership with Adaptive Biotechnologies (ADPT - Free Report) , deserves a special mention.
Further, Azure’s increased availability in 58 regions globally, is expected to have strengthened Microsoft competitive position in the cloud computing market, dominated by Amazon’s (AMZN - Free Report) Amazon Web Services.
Notably, Azure revenues surged 64% at constant currency on a year-over-year basis in the last reported quarter.
For the fiscal third quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under this segment) between $11.85 billion and $12.05 billion. Azure's revenue growth is likely to reflect continued strength in the consumption and per-user based services.
The Zacks Consensus Estimate for the Intelligent Cloud segment revenues is currently pegged at $12.002 billion, indicating growth of 24.4% from the year-ago quarter.
Microsoft Corporation Revenue (Quarterly)
Microsoft Corporation revenue-quarterly | Microsoft Corporation Quote
Click here to know how the company’s overall Q3 performance is expected to be.
Robust Uptick in Teams on Work-From-Home Wave: A Key Catalyst
The tech giant is incorporating AI capabilities in its Microsoft 365 solutions (revamped version of Office 365 software suite) to boost enterprise productivity, which is likely to have bolstered adoption rate. This is likely to have aided the company to compete with Alphabet’s (GOOGL - Free Report) G-Suite.
Moreover, the company enhanced its workspace communication offering, Teams, with a slew of new capabilities enabling users to work from home seamlessly, in the wake of the coronavirus crisis.
These initiatives are expected to have driven subscriber base, which in turn is likely to have contributed to the fiscal third-quarter performance.
Markedly, Teams has been witnessing a robust surge in usage owing to the coronavirus-induced demand. Notably, the company stated that Teams recently set a new daily record of 2.7 billion meeting minutes, up 200% from 900 million minutes on Mar 16. On Mar 19, Microsoft noted that Teams had 44 million daily active users (DAU). Moreover, out of Fortune 100 companies, 93 have implemented Microsoft Teams.
Increasing popularity of the company's products instill investor confidence in the stock. Notably, shares of Microsoft have returned 11% year to date, outperforming the industry’s rally of 4.5%.
Markedly, Office 365 Consumer subscribers in the trailing four quarters have grown consistently, from 34.2 million to 37.2 million. We expect momentum in subscribers to have continued in the to-be-reported quarter, backed by digital transformation in the industry triggered by coronavirus crisis-led work-from-home wave.
For fiscal third-quarter, Microsoft expects Productivity and Business Processes revenues between $11.5 billion and $11.7 billion, driven by double-digit growth in Dynamics, Office commercial and LinkedIn.
The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at $11.642 billion, indicating an improvement of 13.7% from the prior-year quarter.
Coronavirus-Led Supply Chain Disruption a Woe
On Feb 26, Microsoft announced that it does not expect to meet More Personal Computing third-quarter fiscal 2020 revenue guidance due to the coronavirus outbreak in China. The company had expected revenues between $10.75 billion and $11.15 billion.
Windows OEM and Surface business have been affected by supply chain disruption related to the coronavirus outbreak. Microsoft had expected OEM revenues to grow sequentially, backed by robust commercial demand for Windows 10. Moreover, Surface revenues were anticipated to improve slightly year over year.
Further, deteriorating trend in PC shipments in the first quarter, due to coronavirus crisis-induced supply constraints, is likely to have weighed on the company’s More Personal Computing segmental performance in the to-be-reported quarter. Per Gartner’s preliminary data, PC shipments in first-quarter 2020 declined 12.3% year over year to 51.6 million units.
However, work-from-home and stay-at-home trend in the wake of coronavirus-led lockdown has been boosting demand for office equipment. This is likely to have generated incremental revenues from Surface devices and limited the anticipated decline in the to-be-reported quarter.
In the gaming segment, the tech giant is expected to have benefited from an increase in Xbox Live monthly active users and the adoption of Game Pass subscriptions as lockdowns trigger demand for online gaming solutions.
The Zacks Consensus Estimate for revenues for the More Personal Computing segment is currently pegged at $10.669 billion, indicating a decline of 0.1% on a year-over-year basis.
Zacks Rank
Microsoft currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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