Microsoft Corporation (MSFT) will be under the microscope after today’s close as the company is set to announce 4Q16 earnings. Wall Street analysts are on average expecting the software giant to post $22.14 billion in sales during the quarter. While this would show an 8.00% increase from the 3Q16 revenue of $20.5 billion, it would also show a decline of 0.27% from the same period in 4Q15. EPS in 4Q16 are expected to come in at $0.58, a decline rate of 6.45% from $0.62 per share a year earlier. Meanwhile, EarningsWhisper.com reports a whisper number of $0.62 per share.
Microsoft’s last quarter was more or less in-line with expectations.The company however, issued guidance below consensus, prompting a 5 percent plunge in the stock. While revenue is still growing, Microsoft’s profits continue to deteriorate as the company keeps bleeding market share among consumers. According to reports, Microsoft’s ability to generate the cash flow necessary to maintain operations retracted by 20 percent to $23.1 billion in fiscal-year 2015 compared with FY 2012. Additionally, while the Street understands the logic behind LinkedIn’s planned acquisition as a transitional accelerator for Microsoft to cloud computing, they aren’t exactly happy with the deal’s $26.2 billion price tag, by far the company’s largest acquisition ever.
Despite the arguments, the fact is Microsoft’s Azure, the company’s cloud computing platform, needed LinkedIn’s highly lucrative member base, about 433 million of them with two new members joining every second, to step up the fight for more market share in the cloud computing business as the software giant tries to double down on the corporate space. Furthermore, Microsoft will most likely try to transition LinkedIn (LNKD) to Azure, which they will not only use as documentation on how to move large shops to the platform, but also to prove the acquisition’s natural fit.
Stock Prospect
As Microsoft continues to show progress in its transition toward being a cloud-focused firm, the growth in the segment will most likely push the stock to the upside. Wall Street analysts also believe an important and bright spot in today’s earnings report will be Microsoft’s cloud business. In a recent note to investors, JPMorgan’s (JPM) Mark Murphy, who has a ‘Neutral’ rating and $50 price target on the stock, said his survey of 44 top Microsoft resellers indicates that the company’s partners believe the firm is “improving its technology vision.” The survey also showed strong momentum in Azure and Office 360.
Last quarter, Microsoft reported an 8 percent increase in its Intelligent Cloud business to $6.1 billion. Within the segment, Azure revenue grew by a whooping 120 percent compared to the same time last year. The company also said that Azure compute usage and Azure SQL usage, a service offering data-storage capabilities, more than doubled, and the Enterprise Mobility customer install base grew almost four times. Needless to say, cloud computing, which according to Morgan Stanley (MS) will be 30 percent of Microsoft’s revenue by FY 2018, is a booming business in which Microsoft is extremely well positioned. With the cloud market growing at 28% clip annually, it’s only logical to think MSFT stock will be able to gain on the back of rosy cloud computing prospects.
MSFT Price Action
Microsoft stock is printing a normal average trading volume today with the issue trading 16 million shares, compared to the average 3-month daily volume of 32.9 million. The stock began trading this morning at $53.71 to currently trade 0.86% lower from the prior days close of $53.96. On an intraday basis it has gotten as low as $53.38 and as high as $53.90.
Microsoft shares have advanced 7.08% in the last 4 weeks, while declining 3.76% in the past three months. Over the past 5 trading sessions the stock has gained 2.61%.
The $420.3 billion Redmond, Washington-based company has a median Street price target of $59.50 with a high target of $70.00.
Microsoft Corp. is up 18.96% year-over-year, compared with a gain of 1.80% in the S&P 500.
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