What To Expect From Microsoft’s 2018 After Another Solid Quarter?

by Trefis Team
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Microsoft (NASDAQ:MSFT) announced its Q3 fiscal 2018 earnings on April 26, reporting a 16% increase in net revenues to $26.8 billion. The company has reported strong revenue growth from non-computing revenue streams over the last couple of years. This trend has continued in fiscal 2018 thus far, with 19% revenue growth for non-computing revenue streams through the first nine months of the fiscal year to $48.8 billion. Comparatively, More Personal Computing revenues rose 4% y-o-y to $31.5 billion, which resulted in net revenue growth of 13% to just over $80 billion for the three quarters combined.

Additionally, Microsoft’s adjusted EBITDA margin has consistently improved in recent years, from around 36% in FY 2015 to 39.4% in FY 2017. This trend has also continued in FY’18 thus far, with almost a percentage point improvement in company-wide adjusted EBITDA margin to just over 40%, per Trefis estimates. The improvement in operating profit margin can be attributed to improving gross margins in the Personal Computing segment.

We expect this trend to continue through the end of the fiscal year, with net revenues expected to increase in high single digits for the full year. For the fiscal year ended June, we expect Productivity and Business Processes revenues to increase around 18% to $36 billion, while Intelligent Cloud revenues are expected to increase 13% to $31 billion. Comparatively, More Personal Computing revenues are expected to increase only around 2% over the prior year period to $39.5 billion. We expect margins to improve by around 1 percentage point leading to a 22-23% increase in net income and EPS. We have summarized our FY’18 expectations on our interactive dashboard platform, where you can modify assumptions such as changes in expected segment revenue or margins to see how they impact the company’s expected EPS for the full year.

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