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Microsoft (MSFT) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research
·3-min read

Microsoft MSFT is set to report third-quarter fiscal 2023 results on Apr 25.

The Zacks Consensus Estimate for revenues is pegged at $50.96 billion, indicating growth of 3.24% from the figure reported in the year-ago quarter.

The consensus mark for earnings has remained steady at $2.22 per share over the past 30 days, suggesting flat year-over-year growth.

Microsoft’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, the average surprise being 1.12%.

Let’s see how things have shaped up for the upcoming announcement:

Microsoft Corporation Price and EPS Surprise

Microsoft Corporation Price and EPS Surprise
Microsoft Corporation Price and EPS Surprise

Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote

Teams Momentum to Aid Growth

The momentum witnessed for Teams, Microsoft’s workspace communication offering, might have acted as a tailwind in the to-be-reported quarter. Teams’ user growth is expected to have been driven by the continuation of remote work and mainstream adoption of the hybrid/flexible work model.

The introductions of Teams Rooms, Mesh for Teams and Teams Essentials are noteworthy developments. Teams’ expanding customer base and features have been actually helping this Zacks Rank #3 (Hold) company win shares in the enterprise communication market against Zoom ZM. Shares of Microsoft have gained 20.2% in the year-to-date period against Zoom’s decline of 0.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Strong adoption of Dynamics 365 is expected to have driven top-line growth in the to-be-reported quarter. Microsoft expects revenue growth in the low to mid-teens driven by continued growth in Dynamics 365, which is now more than 80% of total Dynamics revenues.

Microsoft and OpenAI's shared commitment to building generative AI systems and products that are trustworthy and safe is noteworthy. In the to-be-reported quarter, Microsoft’s rollout of a Bing search chatbot based on technology is underlying OpenAI’s ChatGPT in a renewed attempt to bite off more market share from Google Search.

PC Shipment Decline is Likely to Hurt Top Line

Revenues from Windows are likely to have been driven by steady traction seen in Windows Commercial products and cloud services growth amid weak personal computer (PC) demand.

The decline in PC shipments aggravated in the first quarter of 2023, according to the latest data compiled by market research firm, International Data Corporation (“IDC”). The first quarter marked the fifth consecutive quarter of PC sales decline, following two successive years of strong year-over-year growth, driven by pandemic-led increased demand for remote-working and online-learning tools.  

Among big PC vendors, Dell Technologies DELL, Apple AAPL and Lenovo registered a decrease in shipments.  Apple registered the highest fall of 40.5% to 4.1 million units, followed by Dell Technologies’ 31% to 9.5 million PCs.

For more personal computing, the company projects revenues between $11.9 billion and $12.3 billion, pressured by a sharp decline in the PC market. The company sees Windows OEM revenues to decline in the mid-to-high 30s in line with the PC market.

The Zacks Consensus Estimate for More Personal Computing revenues is currently pegged at $12.13 billion, indicating 16.4% decline from the figure reported in the year-ago quarter.

For Intelligent Cloud, Microsoft anticipates revenues in constant currency to increase between 17% and 19% to a range of $21.7-$22 billion. Microsoft warned that revenue growth from Azure, the cloud computing platform that has become one of the main engines of its business, would slow by 4 or 5 percentage points sequentially in the fiscal third quarter, leaving aside the effect of currency movements.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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