Microsoft Q4 Earnings Preview: Analysts Expect Big Cloud Profit

Microsoft CEO Satya Nadella will comment on the company’s fourth quarter 2021 earnings report. (AP Photo/Richard Drew)

Microsoft (MSFT) will report its fourth quarter 2021 earnings after the closing bell on Tuesday, with analysts looking at how far the tech giant has managed to build out of its cloud empire.

Here’s what analysts expect from the Windows maker in the quarter, as compiled by Bloomberg, versus how it performed in Q4 2020.

  • Gain: $44.25 billion expected versus $38 billion in Q4 2020

  • Profit per share: $1.92 expected vs $1.46 in Q4 2020

  • Productivity and business processes: $13.9 Billion Expected vs $11.8 Billion in Q4 2020

  • Intelligent Cloud: $16.4 Billion Expected vs $13.4 Billion in Q4 2020

  • More personal computing: $13.8 Billion Expected vs $12.9 Billion in Q4 2020

Microsoft’s cloud business has been key to its impressive stock performance in recent years, with the company’s market cap closing at approximately $2 trillion in June for the first time in its history. And analysts expect more from the company in the fourth quarter.

“We expect another beat and raise special from Redmond with Azure growth rates (45%+ YoY) exceeding whisper expectations and headline numbers well above Street’s $44 billion and $1.90 estimate,” Wedbush analyst Dan Ives wrote in a note ahead of Microsoft’s earnings.

“We see deal size continuing to grow significantly as the shifts in enterprise digital transformation accelerate, with CIOs all focused on preparing their respective enterprises for a cloud-driven architecture,” he added.

The pandemic forced many companies to build opportunities for their employees to work from home, forcing companies to spend more on cloud resources. And with more employees looking for work-from-home opportunities, companies will have to continue to meet those requests so that they continue to invest in cloud capabilities going forward.

Brad Sills of BofA Global Research, meanwhile, expects a 2% to 3% increase from Microsoft’s total revenue estimates in the fourth quarter, based on continued strength from Azure and Office 365.

While the cloud has been a major growth engine for Microsoft in recent years, the market is far from oversaturated, even with competitors like Amazon (AMZN) and Google (GOOG, GOOGL).

“We believe the cloud shift is just beginning to enter its next growth phase globally,” Ives wrote. “We believe this disproportionately benefits Redmond’s tough cloud, such as [CEO Satya Nadella] & Co. are so well positioned at the core of the enterprise to further leverage their Azure/Office 365 as the cloud backbone and vein.”

While Microsoft’s cloud performance will certainly be the talk of the earnings announcement, analysts and investors will likely hope for Nadella’s commentary on the Department of Defense’s recent decision to launch its 10-year, $10 billion Joint Enterprise Defense Initiative (JEDI) to pull. contract from Microsoft.

Project JEDI is designed to modernize the Pentagon’s communications and technology capabilities for the 21st century. But it was mired in controversy over allegations that Microsoft beat Amazon for the deal thanks to pressure from former President Donald Trump.

In a lawsuit, Amazon Claimed Trump Pressured the DOD to choose Microsoft for the contract as a means of hurting Amazon CEO Jeff Bezos. Bezos owns The Washington Post, which accused Trump of writing “fake news” about him.

Now the contract will be spread across multiple cloud vendors rather than a single company, which could benefit both Microsoft and Amazon in the long run.

Microsoft’s Q4 revenue also follows the unveiling of Windows 11, its next-generation operating system. But the company says, in keeping with previous precedents, it will defer any revenue from the sale of Windows 11 licenses made for general availability later this holiday season. So don’t expect any impact from the new operating system in Q4.

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