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3 Key Predictions for Microsoft's Q4 Earnings Report

Shares of Microsoft MSFT climbed nearly 1% higher to touch a new 52-week high on Wednesday, just one trading period before the software behemoth is set to release its pivotal fourth-quarter earnings report.

Over the past several years, global demand for personal computers—and related software—has plummeted. This put Microsoft in a tricky situation; the company known for its innovative Windows operating system now needed to rebrand itself as a tech leader that could adapt to the times.

In many ways, Microsoft has done just that. For one, the company moved to a “freemium” model with Windows 10, offering the new OS as a free upgrade and focusing on the monetization of compatible apps and services.

We’ve also witnessed Microsoft’s evolution through the aggressive growth of its Azure division. Azure is Microsoft’s cloud computing service that builds, deploys, and manages applications and web services through the company’s own network of data centers. Azure has been growing at nearly a triple-digit rate over the past year or so.

So what’s in store for Microsoft this quarter? Well, the current Zacks Consensus Estimates are calling for earnings of 71 cents per share and revenue of $24.19 billion. These results would represent year-over-year growth rates of 2.5% and 17.3%, respectively.

Furthermore, Microsoft is carrying a Zacks Rank #2 (Buy) into its report, although its -2.82% Earnings ESP makes the predictive power of this formula less relevant.

Of course, earnings and revenue are just two of the many things investors will be looking at when Microsoft reports on Thursday. Check out these three additional things to expect.

These important stock drivers are from our exclusive non-financial metrics consensus estimate file. These estimates are updated daily and are based on the independent research of expert stock analysts. Learn more here>>>

1. Thanks to Azure, Intelligent Cloud growth will continue

According to our exclusive consensus estimates, Microsoft’s Intelligent Cloud division is poised to report year-over-year growth of nearly 8.3%, with unit revenues reaching $7.32 billion. Last quarter, our estimates called for a similar growth rate, but Microsoft actually outpaced these projections and delivered year-over-year unit growth of nearly 11% on the back of a 94% improvement in the Azure segment.

Azure will likely be the catalyst for Intelligent Cloud growth again, and if Microsoft can post better-than-expected results in that segment, investors should look for total Intelligent Cloud revenues to beat estimates yet again.


2. LinkedIn will lift the Productivity & Business Processes unit higher

Thanks to the recent acquisition of LinkedIn, as well as the incredible growth of Office 365 and its associated cloud services, Microsoft’s Productivity & Business Processes unit is poised to swell. Our latest consensus estimates are calling for this unit to post quarterly revenues of $8.35 billion.

In the prior-year quarter, before the LinkedIn deal closed, this unit brought in about $7.96 billion, so if Microsoft can match estimates, we could see growth of nearly 5% in this segment. It’s also worth noting that the Productivity & Business Processes unit is closing in on Microsoft’s More Personal Computing division as the largest segment in terms of revenue.


3. More Personal Computing will slump… again

More Personal Computing, which remains Microsoft’s largest unit for now, includes the company’s hardware, search advertising, and Windows ventures. These have been the areas that Microsoft has struggled with recently, and those struggles are likely to continue.

Our current consensus estimate calls for this segment to slip about 2.7% to $8.60 billion. Last quarter, this unit witnessed a slump of nearly 7.5%, so this could even be considered a slight improvement here, but this trend really illustrates that transformation that the company has undergone recently.

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