Photo: Associated Press
Microsoft reports Fiscal Q310 earnings on Thursday after the close. We’ll be following the earnings live at 4 PM EST here.The Bottom Line: There have been numerous reports the past couple weeks of strength in the PC market, which should give investors some confidence that the company will meet expectations. Wall Street is looking for Microsoft to modestly beat consensus estimates so the MSFT shares will likely need a blowout to see a material move on the news.
The Street is largely expecting Microsoft to report a strong quarter across its Windows, Servers, and Business Division lines. The company’s Entertainment division (Xbox) will likely be weak given industry sales data and the fact that the Xbox continues to lose share (expectations are low though). Online services (only 4% of overall revenue) will likely look like Google and Yahoo’s results – indicative of a modest recovery in online advertising.
Background: Despite the recent positive industry data (and earnings from tech stocks this week), the MSFT shares have lagged the S&P all year (+1% vs. +8% for the S&P). The underperformance suggests investors are concerned with long-term growth prospects more than they are pleased with the recent strength.
We agree. While earnings will likely meet or beat consensus we think Microsoft is in a difficult spot long-term as PC computing moves increasingly into the cloud, putting the company’s Windows franchise at risk of losing share to aggressive competitors.
Key Consensus Estimates:
- Total Revenue: $14.4 Billion Windows: $4.2 Billion Server & Tools: $3.7 Billion Online Services: $575 Million Business Division: $4.3 Billion Entertainment & Devices: $1.7 Billion
- Windows: $4.2 Billion
- Server & Tools: $3.7 Billion
- Online Services: $575 Million
- Business Division: $4.3 Billion
- Entertainment & Devices: $1.7 Billion
- Operating Income: $4.8 Billion
- EPS: $0.42
- Key Items To Watch Out For: Windows and Office updates, Bing, Mobile.
Here is an excellent snapshot from Citi analyst Walter Pritchard (click here to enlarge):
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