Microsoft is set to report its Q2 (Dec) results today, with a conference call to follow at 5:30pm ET.
The CapitalIQ consensus estimate for non-GAAP EPS is a 7% decrease year-over-year to $2.31, and for revenue to grow 3% year-over-year to $53.16 billion.
Microsoft operates in several areas, including Productivity and Business Processes (Office 365, LinkedIn, Dynamics 365), Intelligent Cloud (Azure, SQL Server, Windows Server, Nuance), and More Personal Computing (Windows, Surface, Xbox).
MSFT has a history of beating consensus estimates, but did see a rare EPS miss in Q4 (Jun). However, in Q1 (Sep) they returned to reporting upside.
The main concern for Azure, a cloud computing service, was that it came up a bit light in SepQ and the DecQ guidance was weak. Azure grew 35% in SepQ, which was a point below the prior guidance and a decline from the previous quarter. The MarQ Azure guidance will be closely watched to see if this trend continues.
Another area of concern is customer advertising spend, which weakened late in SepQ and raises concerns for DecQ. This impacts Search and news advertising and LinkedIn. Additionally, Netflix's ad-supported subscription plan (powered by Microsoft) has been slow to take off, according to some reports. MSFT's consumer business has also been impacted by PC market demand, which deteriorated further in September and affected the Windows OEM and Surface businesses. Foreign exchange rates have also had a significant impact on results due to the strengthening US dollar. MSFT's recent announcement of 10,000 layoffs will also be worth watching.
TECHS:
MSFT trended lower for much of 2022, but has improved in 2023 along with other tech stocks. However, investors should be cautious and pay attention to the report and conference call for more information. The push pull here is slowing business and layoffs versus the currency tailwind.
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