What To Expect From Microsoft’s Q3 Earnings

by Trefis Team
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Microsoft (NASDAQ:MSFT) is scheduled to report its Q3 earnings on April 24. The company’s Q2 witnessed strong revenue growth (+12% y-o-y). However, investors were concerned about potential signs of a slowdown in Microsoft’s Azure business. In addition to commentary around its cloud business, we expect a slew of developments during Q3 to also attract market attention, which we discuss further below.

We currently have a price estimate of $104 per share for Microsoft, which is around 15% higher than the current market price. Our interactive dashboard on Microsoft’s Q3 Earnings outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation.

Microsoft has been benefitting from the adoption trends in Office 365 and the company’s public cloud offerings. With the resurgence of Google Cloud and strong presence of Amazon in the public cloud sphere, Microsoft has also been taking steps towards ensuring sustained growth. While the company has many moving parts, some of the key areas we will be watching for Q3 include:

  • Azure Sentinel: A Security Information and Event Management tool that uses artificial intelligence to sift through data to identify potential threats. The product works with Check Point Software, Cisco, Symantec, and Palo Alto. While Splunk is one of the leaders in this space, Microsoft’s entry is likely to attract attention given the company’s cloud customer base, and we will be looking for qualitative commentary around the traction in the product.
  • Launch of the Microsoft Game Stack: In March 2019, Microsoft announced that it had brought all its gaming development related offerings under a single umbrella (Microsoft Game Stack). The idea is to leverage the ecosystem of products and provide a complete platform to game developers.
  • Status on accreditation from the Department of Defense: Along with Amazon, Microsoft is the only other major player in the fray for the prestigious $10 billion JEDI contract. While Amazon is the only company cleared to host confidential data, Microsoft is awaiting this clearance. Any positive updates on this front could send the stock up.
  • Others: There have been a number of other developments, including Spotify joining Microsoft’s game bar, Microsoft’s plan to launch a competing product to Shopify, collaboration with Facebook for the development of open specifications for design and manufacture of co-packaged optics and Microsoft’s involvement in the launch of Quantum Nexus with University of Washington and the Pacific Northwest National Laboratory (similar to Chicago Quantum Exchange or the Harvard Quantum Initiative).

We expect the investments in these initiatives will not meaningfully impact revenue or earnings in this quarter, but will likely have a longer-term impact on the company’s performance and valuation. We expect Q3 revenue and net income to be $30 billion and $8.5 billion, respectively.

Do not agree with our forecast? Create your own price forecast for Microsoft’s Price Estimate by changing the base inputs (blue dots) on our interactive dashboard.

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