What To Expect From Microsoft’s Fourth Quarter Earnings

by Trefis Team
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Microsoft (NASDAQ:MSFT) is scheduled to report its Q4 fiscal 2018 earnings on Thursday, July 19. The company has reported strong revenue growth from non-computing revenue streams in recent years. This trend has continued through the first three quarters of fiscal 2018 thus far, with net revenue growing by 13% year-on-year to $80.3 billion. Productivity and Business Processes revenues were up 23% y-o-y to $26.2 billion, while Intelligent Cloud revenues rose 15% to $22.6 billion. Comparatively, More Personal Computing revenues were up just 5% over the comparable prior year period to $31.5 billion. We expect this trend to continue through the end of the fiscal year, with net revenues expected to increase at similar rates for the fourth fiscal quarter as well.

We have summarized our Q4 FY’18 expectations on our interactive earnings preview dashboard for Microsoft, 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.

What We Will Be Watching

Microsoft’s adjusted EBITDA margin has consistently improved in recent years, from around 36% in fiscal 2015 to 39.4% in fiscal 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.

Keeping up the trend from recent quarters, we expect Productivity and Business Processes revenues to increase around 22% to $10.3 billion for the June quarter, while Intelligent Cloud revenues are forecast to increase 18% to $8.8 billion. Comparatively, More Personal Computing revenues are likely to increase by just around 4% over the prior year period to $9.2 billion. We expect the company’s net margin to decline by around one percentage point, leading to a 10-12% increase in net income and EPS.

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