Microsoft is set to report Q3 earnings after the bell. The company releases their earnings results on their website. In addition, there is a conference call scheduled at 5:30pm ET, where management will provide Q4 revenue guidance.

‘Mobile first, Cloud first' strategy

There is no other competitor in the cloud space other than AMZN really. MSFT strategy focused on being that second competitor since they realize they could not overtake the 800lb gorilla in the room known as AWS.

Key Metrics/Guidance

  • Current Consensus calls for adj. EPS of $0.64 on revenues of $22.1 bln.
  • The company provided the following guidance for Q3 revenues:
    • Productivity and Business Processes revs of $6.4-6.6 bln.
    • Intelligent Cloud segment revs of $6.1-6.3 bln .
    • Personal Computing revs of $9.1-9.4 bln.
    • Summing these gives total rev guidance of $21.6-22.3 bln.
  • Management is expected to provide Q4 revenue guidance on the call (segment by segment). Current Consensus calls for Q4 revenues of $23.1 bln.

RESULTS

Microsoft misses by $0.02, reports revs in-line; guides Q3 Q4 revs below consensus on the call   

  • Reports Q3 (Mar) earnings of $0.62 per share, excluding non-recurring items, $0.02 worse than the Consensus of $0.64; revenues rose 1.6% year/year to $22.08 bln vs the $22.11 bln Consensus. 

Productivity and Business Processes rev +1% to $6.5 bln vs. $6.4-6.6 bln guidance.  

  • Office commercial products and cloud services revenue grew 7% in constant currency driven by Office 365 revenue growth of 63% in constant currency
  • Office consumer products and cloud services revenue grew 6% in constant currency with Office 365 consumer subscribers increasing to 22.2 million

  • Dynamics products and cloud services revenue grew 9% in constant currency with Dynamics CRM Online seat adds more than doubling year-over-year.

  • Intelligent Cloud rev +3% to $6.1 bln vs. $6.1-6.3 bln guidance
    • Server products and cloud services revenue increased 5% in constant currency driven by double-digit annuity revenue growth
    • Azure revenue grew 120% in constant currency with usage of Azure compute and Azure SQL database more than doubling year-over-year
    • Enterprise Mobility customers more than doubled year-over-year to over 27,000, and the installed base grew nearly 4x year-over-year.
  • Personal Computing revs +1% to $9.5 bln vs. $9.1-9.4 bln guidance.
    • Windows OEM revenue declined 2% in constant currency, outperforming the PC market, driven by higher consumer premium device mix
    • Surface revenue increased 61% in constant currency driven by Surface Pro 4 and Surface Book
    • Phone revenue declined 46% in constant currency

Xbox Live monthly active users grew 26% year-over-year to 46 million.

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No matter how you slice it, this wasn't a good quarter for MSFT. As discussed in the trade packet, MSFT was a no touch as it was going into a report with lofty expectations, high IV, and into 20 year overhead supply (charts below). As expected, it traded back to the 100 day.