Microsoft Earnings Preview: Looking For A Beat And Raise

By Michelle Jones

Microsoft Corporation (MSFT) is scheduled to release its next earnings report this Thursday, Oct. 22, and on average, analysts are expecting the company to post earnings of 59 cents per share and $20.88 billion in revenue. The third quarter earnings season has only just begun, and already it’s becoming apparent that it will be a rocky road.

Microsoft benefits from shifting sentiment

UBS analyst Brent Thill noted that Microsoft shares have climbed about 6% over the last three months on the back of shifting sentiment as investors have begun to favor lower-beta and high-quality names and spurn high-beta stocks. Despite this shift and the small appreciation in Microsoft stock, the company’s shares have had a difficult time moving up out of the $40 to $50 range, and Thill thinks investors are still looking for the bottom.

In each of the last few quarters, estimates have fallen, and so now Wall Street is debating whether management will be able to switch from beat and lower to beat and raise.

What to expect in Microsoft’s earnings report

Thill is expecting Microsoft to beat revenue estimates but just barely miss earnings estimates. He’s modeling revenue of $21.3 billion and earnings of 58 cents per share for the September quarter. He doesn’t think Wall Street is pricing “another big number cut” into Microsoft shares, which could suggest downside.

The analyst also noted that Windows 10 is on more than 110 million devices, and new devices mean that Microsoft’s opportunity in this area is expanding. Among the new products that have been unveiled recently are the 13.5-inch Surface Book, which is twice as powerful as the MacBook Pro. It’s priced at $1,499 and becomes available on Oct. 26.

The Surface Pro 4 is also new, and it’s 30% more powerful than its predecessor and 50% more powerful than the MacBook Air. It starts out at a price of $899. Microsoft also unveiled two new flagship smartphones, the Lumia 950 and Lumia 950 XL. They’re the first Windows 10 phones and feature Continuum and a PC experience through a dock via a smartphone. They’re priced at $549 and $649 respectively.