Microsoft (NASDAQ:MSFT) is preparing to announce its fourth-quarter fiscal 2023 results on July 25. According to the Consensus Estimate, revenues are expected to reach $55.36 billion, reflecting a 6.74% increase from the previous year’s quarter. However, the consensus estimate for earnings has slightly decreased by 0.4% to $2.55 per share over the past 30 days, still indicating year-over-year growth of 14.35%.
Over the last three months, Microsoft stock outperformed the broader Computer & Technology sector, as well as competitors like Zoom, Dell Technologies, and Hewlett Packard.
In the past four quarters, Microsoft’s earnings have exceeded the Consensus Estimate in three instances, with an average surprise of 3.25%. The company’s top-line growth is expected to be driven by the strength of its Intelligent Cloud and Productivity and Business Processes segments, fueled by the growth of Teams, Azure, and other cloud services.
Teams and Office 365 are expected to play a significant role in driving productivity and business growth. The continued adoption of remote work and the hybrid/flexible work model has propelled the user growth of Teams. Microsoft anticipates revenue growth in the Productivity and Business Processes segment to be between 10% and 12% in constant currency, amounting to a range of $17.9-$18.2 billion. The company has been gaining market share against Zoom in the enterprise communication market, thanks to the expanding customer base and features of Teams.
Microsoft also expects strong revenue growth from Office 365, projected to be around 16% in constant currency. The availability of Microsoft 365 Copilot to a wider range of customers and the adoption of Dynamics 365 are anticipated to contribute to top-line growth.
Furthermore, Microsoft’s partnership with OpenAI has driven the development of generative AI systems and products, with innovative AI solutions specifically designed for Microsoft Cloud for nonprofits. The company has also expanded its collaboration with Epic to integrate generative AI in the healthcare sector.
However, Microsoft may face challenges in its Windows revenues due to the persistent decline in the PC market. Although the PC market is showing signs of stabilization, PC shipments in the second quarter of 2023 experienced a significant year-over-year decline. Among major PC vendors, Dell Technologies, Hewlett Packard, and Lenovo reported decreased shipments. Microsoft projects revenues between $13.35 billion and $13.65 billion for its personal computing segment, pressured by the ongoing decline in the PC market.
On the other hand, Microsoft expects revenue growth in the low-to-mid teens for Xbox content and services, driven by third-party and first-party content, as well as Xbox Game Pass. In the Intelligent Cloud segment, the company anticipates revenue growth between 15% and 16%, primarily fueled by Azure. However, Microsoft cautions that revenues from Azure can experience quarterly variability due to factors such as per-user business and revenue recognition.
As investors await Microsoft’s earnings report, the performance of Teams, Office 365, Windows, and the Intelligent Cloud segment will be closely watched.
In terms of international expansion, Microsoft has been making significant strides. The company has been strengthening its presence in emerging markets, particularly in Asia, where there is a growing demand for cloud services and digital transformation solutions. This strategic expansion has allowed Microsoft to tap into new customer segments and drive revenue growth in these regions.
Microsoft Stock Is Still a Great Long-Term Buy
Looking ahead, Microsoft’s long-term prospects remain promising. The company continues to invest in research and development to drive innovation across its product portfolio. Additionally, its strong financial position and cash flow generation provide a solid foundation for future growth and strategic investments. Microsoft stock remains an excellent long-term buy.
Featured Image: Pexels @ Salvatore De Lellis
