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From: Sam1/26/2017 2:36:36 PM
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Microsoft earnings: Expect bigger shift to cloud as Azure closes in on AWS
MARKETWATCH 1:20 PM ET 1/26/2017

Symbol Last Price Change
64.43 +0.75 (+1.18%)
QUOTES AS OF 02:34:28 PM ET 01/26/2017


Azure and Office365 to benefit from improving PC trends

Stronger PC trends are expected to benefit Microsoft Corp.(MSFT) on Thursday, when the Windows parent reports second-quarter earnings after the market closes.

Improving PC shipments may be a boon to Microsoft's(MSFT) cloud-based software and enterprise services during the quarter. Worldwide shipments of traditional PCs declined 1.5% year-over-year to 70.2 million last quarter, much improved from a 5.7% decline (http://www.marketwatch.com/story/pc-market-significantly-improves-during-holiday-shopping-season- 2017-01-11) in the year-earlier period.

This will be the first full quarter of hardware sales since Microsoft(MSFT) introduced new Surface and Windows products in October, including a new $2,999 Surface PC called Surface Studio. The quarter will also reflect holiday sales.

Also see: Apple demolished by Microsoft(MSFT) at dueling PC events (http://www.marketwatch.com/story/apple-demolished-by- microsoft-at-their-respective-pc-events-2016-10-27)

Here's what to expect:

Earnings: Sell-side analysts surveyed by FactSet expect Microsoft(MSFT) to report a non-GAAP profit of 79 cents a share, compared with 78 cents in the year-earlier period. Contributors to Estimize, a software platform that uses crowdsourcing from hedge-fund executives, brokerages and buy-side analysts to predict earnings, expect Microsoft(MSFT) to report 81 cents a share. The company surpassed both consensus estimates by a wide margin the past two quarters. It has a long history of beating EPS expectations.

Revenue: The company is expected to report revenue of $25.3 billion, compared with $25.7 billion in the year-earlier period, according to the FactSet and Estimize consensus estimates. Microsoft(MSFT) has topped both expectations in each of the last five quarters.

Stock reaction: Shares of Microsoft(MSFT) have underperformed the market since its last earnings report. The stock has increased 4.1% in the past three months and 23% in the past year. By comparison, the Dow Jones Industrial Average, of which Microsoft(MSFT) is a member, is up more than 10% in the past three months and 26% in the past year. The average rating on Microsoft's(MSFT) stock is the equivalent to buy, while the average 12-month price target is $63.61, according to a FactSet survey of roughly 30 analysts. Shares of Microsoft(MSFT) closed at $63.68 Wednesday.

What to watch for: Pacific Crest analyst Brent Bracelin reiterated an overweight rating and $70 target on the stock this week and said he expects "another solid quarter" that should reinforce his "bullish stance on the company's progress in pivoting from haggard to leader in cloud, digital and artificial intelligence."

(https://sw.graphiq.com/w/lBGvgNp1Crr)

Braceline raised his fiscal 2017 revenue estimate on Microsoft(MSFT) last week, citing increasing cloud adoption and share gains in the software-as-a-service market with Office 365 and Azure.

Citing strong adoption of Azure, the closest competitor to Amazon.com Inc.'s (AMZN) web services division, analysts at Macquarie raised their price target on Microsoft's(MSFT) stock this week by a dollar to $61. However, they said volatile foreign currency trends kept them from "dramatically increasing" their below-consensus estimates.

Analysts at Estimize said Azure is "now firmly the second-best cloud computing platform," only behind AWS. According to FactSet, Microsoft(MSFT) is expected to report sales of $6.7 billion in its intelligent cloud business, compared with $6.3 billion in the year-earlier period.

-Jennifer Booton; 415-439-6400; AskNewswires@dowjones.com

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