Microsoft Reports Earnings Today. Here’s What to Expect.

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Microsoft
’s
quarterly results are likely to show a continued run of strong growth, but the skies aren’t entirely clear.

Figures for the software company’s fiscal third quarter which ended in March, are due after the close of trading on Tuesday. Analysts expect another robust performance, driven by healthy demand for cloud-based computing and strong growth in enterprise IT spending.

But there is some elevated risk in the company’s Windows business, given recent signs of a sharp postpandemic slowdown in consumer buying of PCs. Analysts also see potential trouble from global political instability tied to the Russian invasion of Ukraine

Meanwhile, investors will be looking for any new information on the company’s pending $68.7 billion acquisition of

Activision Blizzard

(ATVI). That stock continues to trade at a sharp discount to the bid price, suggesting uncertainty on the Street that regulators will allow the deal to proceed.

For the quarter, Wall Street consensus estimates call for Microsoft (ticker: MSFT) to report revenue of $47.5 billion, up nearly 18% from a year earlier, with profits of $2.19 a share, up from $1.95. 

Microsoft’s practice is to provide quarterly guidance on revenue for its three primary business segments. On the earnings call following the previous quarter’s results, Microsoft CFO Amy Hood said the company expects revenue from the company’s Productivity and Business Processes segment, which includes Office and other applications, of between $15.6 billion and $15.85 billion. The Wall Street consensus call, according to FactSet, splits the difference, at $15.75 billion.

For the Intelligent Cloud segment, which includes the company’s Azure cloud business, she projected revenue of between $18.75 billion and $19 billion. The Wall Street consensus is at $18.89 billion.

For the More Personal Computing segment, which includes Windows, Surface and Xbox, among other things, Hood projected revenue of between $14.15 billion and $14.45 billion. The Street has penciled in $14.3 billion.

In providing that guidance, Hood said unfavorable moves in foreign exchange would cut into revenue growth by two percentage points. She noted at the time that the guidance didn’t reflect any contribution from the company’s $16 billion acquisition of Nuance Communications, which was completed in early March. Analysts previewing the quarter note that the currency drag could be a percentage point or two higher than the company had originally anticipated.

Piper Sandler analyst Brent Bracelin has maintained an Overweight rating on Microsoft shares, but cautioned that there is “little margin for error” given increasing global risks and generally bullish sentiment on the stock. On the other hand, Bracelin said, the company’s continued shift toward the cloud should help buoy results.

He is particularly bullish on the outlook for Office 365, the cloud-based version of the company’s flagship office productivity software suite. On Azure, he said, the Street consensus forecast for 46% growth leaves limited room for potential gains. Bracelin has a $352 target price on the stock.

Rosenblatt Securities analyst Blair Abernathy likewise has remained bullish on the stock headed into the earnings report, with a Buy rating and $349 target price. “We believe enterprise IT spending, digital transformation project activity, and shift to the cloud trend remained strong in the March quarter,” he said in a research note.

For the June quarter, the Street sees overall revenue of $52.75 billion, including $16.68 billion from Productivity and Business Processes, $20.88 billion from Intelligent Cloud; and $14.96 billion from More Personal Computing. Profits are projected to be $2.37 a share.

Year to date, Microsoft shares were down about 16.5% as of the close of trading on Monday.

Write to Eric J. Savitz at eric.savitz@barrons.com