Citi analyst Tyler Radke sees “a modestly positive set-up” for Microsoft’s imminent earnings report.
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While Microsoft stock has tumbled about 15% this year, dragged down by the steep market correction, analysts are generally upbeat about the software giant’s December quarter results, due after the close of trading Tuesday.
The Street sees revenue of $50.9 billion for its fiscal second quarter, with profits of $2.31 a share. While Microsoft (ticker: MSFT) does not provide guidance to specific revenue and profit figures, the company does offer detailed forecasts for its three primary business segments.
In reporting September quarter results, Chief Financial Officer Amy Hood projected revenue for the Productivity and Business Processes segment, which includes Office and other applications, of between $15.7 billion and $15.95 billion.
For the Intelligent Cloud segment, including Azure, she sees revenue of between $18.1 billion and $18.35 billion.
For the More Personal Computing segment, including Windows, Surface, and Xbox, Hood expects revenue of between $16.35 billion and $16.75 billion, despite a decline in Surface hardware due to component shortages and moderation of growth in the Search and News ad business.
At the top of the range for each segment, total revenue would be $51.05 billion.
For the March quarter, the Street is projecting $48.2 billion in revenue and profits of $2.17 a share.
Citi analyst Tyler Radke wrote in a recent research note that he sees “a modestly positive set-up” for the report. Based on discussions and surveys of partners and resellers, he sees strong enterprise renewals with particular strength in Office 365 and Dynamics, but notes that Azure revenue growth could moderate on a tough comparison and seasonally weaker bookings last quarter.
Radke recently trimmed his estimates for the fiscal year for the More Personal Computing segment due to expected softening in commercial PC sales, resulting in a slight tweak to his full-year forecast—he now sees profits for the June 2022 fiscal year of $9.69 a share, down from $9.72. Radke keeps his Buy rating on the stock, but recently trimmed his target price to $376 from $407.
BofA Global Research analyst Brad Sills likewise recently repeated his Buy rating on Microsoft stock, while reiterating his $365 price target. He sees “potential” for the company to beat his December quarter revenue forecast of $50.7 billion by 1% to 2% on “sustained strength across the key franchises.”
Sills thinks Azure growth could be as high as 49% in the quarter, above his own forecast of 46% growth. And he thinks More Personal Computing in the quarter could be $250 million above his own forecast of $16.6 billion, based on higher PC shipments in the December quarter. Sills says with the company likely to post sustained mid-to-high trends free-cash-flow growth, the stock remains a “top pick.”
Cowen analyst Derrick Wood maintains his Outperform rating and $360 target price heading into the earnings report, and like Sills thinks his Azure forecast of 45% growth might be too low. In a note previewing the quarter, he adds that he sees strong demand for Office 365 ahead of price hikes. Wood thinks March quarter guidance is likely to be slightly above Street consensus. Wood adds that he thinks Azure will remain the company’s main growth driver going forward, while Office 365 “has been a major success” and is likely the world’s largest software-as-a-service business.
Microsoft stock this morning is down about 2.6%, right in line with the Nasdaq Composite .
Write to Eric J. Savitz at firstname.lastname@example.org