What To Expect From Microsoft’s First Quarter Earnings After A Strong End To Fiscal 2018

by Trefis Team
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Microsoft (NASDAQ:MSFT) is scheduled to announce its Q1 fiscal 2019 earnings on Wednesday, October 24. The company reported a 14% increase in net revenues to over $110 billion for the fiscal year ended June. Microsoft reported 19% revenue growth for non-computing revenue streams to $68.1 billion, while More Personal Computing segment revenues were up 8% y-o-y to $42.3 billion. Additionally, Microsoft’s reported non-GAAP margin improved from around 30% in FY 2016 and FY 2017 to 31.8% in FY 2018. The improvement in operating profit margin can be attributed largely to improving gross margins in the Personal Computing segment. Going forward, we forecast these trends to continue through fiscal 2019 as well. We have summarized our FY’19 expectations on our interactive Microsoft earnings dashboard, 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 To Expect For The Quarter

We expect the aforementioned trends to continue into fiscal 2019, with net revenues forecast to increase in high single digits for the full year. For the first quarter, we expect Productivity and Business Processes revenues to continue to increase in the teens to $9.5 billion. We further expect Intelligent Cloud revenues to increase in the teens to almost $8 billion for fiscal Q1. Comparatively, More Personal Computing revenue growth is likely to slow down somewhat owing to the cyclical nature of product sales in the segment. FY’18 was a particularly strong year due to the strong demand for Windows Commercial, OEM Pro, and Surface. We expect demand to slow down slightly through FY’19. We forecast revenues to increase by 7-8% to $10 billion for the quarter. We forecast operating profit margins to improve by 20-30 basis points, leading to a 12-13% increase in net income and EPS.

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