What To Expect From Microsoft Through Fiscal 2019 After A Strong Start To The Year

by Trefis Team
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Microsoft (NASDAQ:MSFT) announced its Q1 fiscal 2019 earnings on October 24, reporting a 19% increase in net revenues to $29 billion. The company reported strong revenue growth across segments in the September quarter. While growth in Productivity & Business Processes and More Personal Computing segment revenues remained in the teens, growth in Intelligent Cloud segment revenues accelerated to 23% for the quarter. On the other hand, Microsoft’s reported gross margin was down around 40 basis points over the comparable prior year period to 65.9% due to the shift in sales mix towards gaming and commercial cloud offerings. Lower taxes through the quarter led net income and EPS to increase by around 35% over previous year levels to $8.8 billion and $1.14, respectively.

We expect this trend to continue through fiscal 2019, with robust revenue growth and a slight dip in gross margins. We have summarized our FY’19 expectations on our interactive Microsoft earnings forecast 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 In Fiscal 2019

We expect the aforementioned trends to continue in the coming quarters of fiscal 2019, with net revenues expected to increase in the mid-teens for the full year. We expect Productivity and Business Processes revenues to continue to increase by 15% to over $41 billion through FY’19. We further expect Intelligent Cloud revenues to increase by over 16% to $38 billion for the current fiscal year. Comparatively, More Personal Computing revenue growth is forecast 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 operating profit margins to improve by 20-30 basis points even though gross margins are expected to be slightly lower over FY’18 levels. As a result, we expect Microsoft’s net income and EPS to increase by 10-12% on a y-o-y basis to $33 billion and $4.37, respectively, which is slightly higher than the consensus estimates.

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