When Microsoft releases its third quarter earnings, investors will closely be watching the tech giant’s commercial division’s performance.
On Thursday, after the close of trading, Microsoft Corp. (MSFT, +0.82%) will report its fiscal third quarter results. Instead of watching overall profits and sales, investors will eagerly focus on the performance of Microsoft’s commercial division. Earnings met expectations last quarter and revenues were higher than expected, however, by missing commercial sales, the stock price fell 9.3% which marked the biggest one day decline in percentage in 18 months.
According to FactSet analysts, the company is expected to release earnings of 51 cents per share for the 3rd quarter, seeing a decline from the 68 cents per share from the same quarter last year. With these estimates, the company may see a year-over-year decline for 5 consecutive quarters. Meanwhile, Estimize set its earnings expectations at 57 cents a share.
Also, according to analysts, there is an expectation that Microsoft will report a revenue increase from $20.4 billion last year to $21.1 billion. This increase will mark a 4th straight quarter of year-over-year increases. Microsoft has also managed to beat expected revenues for the last six quarters. According to a survey from Estimize, revenues are pegged at $21.7 billion. FactSet say that commercial revenues are expected to increase 1 percent from the previous year to $12.42 billion. Commercial revenues include sales of Office, cloud services, Windows and server products to corporations.
Disappointing second quarter results saw Microsoft stocks take a knock in late January from a 40% surge in 2013 and a further 24% in 2014. Microsoft stocks have also lost 8.2 percent year-to-date while the Nasdaq-100 advanced 4.8% and the Dow (DJIA) gained 0.7%. A survey by FactSet shows analysts setting an average of a $46.70 stock price target which is 9.7 percent above the current levels.
Microsoft stated in a conference call after their 2nd quarter results that based on the currency movements, it expects revenue growth to be negatively affected in the third quarter by around 4 percentage points, while most of the impact may be seen in the company’s commercial business. With other guidance given in January, the company expects an increase in revenue for devices and consumer licensing to $3.6 billion, up from $3.4 billion and a further increase in computer and gaming revenue to $1.7 billion, up from $1.5 billion.
Raymond James analyst, Michael Turits, is bullish about the company’s enterprise businesses and Microsoft’s strategic move to cloud. However, trimming his estimates on earnings and revenues was based on concerns that PC shipments did not meet previous expectations. Turits also expressed concerns about the strong U.S. dollar (USD) and the impact on the company’s annuity and transactional businesses as well as cautions around software licenses being impacted by the move to more cloud based services.
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