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Microsoft Corporation (MSFT) Will Cut Earnings, But Launch A “Golden Age”

Microsoft Corporation Nasdaq:msft

Microsoft Corporation has been under fire from Wall Street as it ramps up to the launch of Windows 10 at the end of the month. Goldman Sachs said that Windows would continue to be a “drag” on the firm’s results, and other analysts have reduced their forecasts for Microsoft’s earnings ahead of the launch. One analyst thinks that though Windows 10 may hurt the firm in the short term, it will launch a new “Golden Age.”

Microsoft Corporation

FBR Capital Markets analyst Daniel H. Ives lowered his earnings forecast for Microsoft in a report published Friday, July 17. The analyst said that EPS for the full year 2016 will come in at $2.12 rather than the $2.88 he had previously thought. The change is based on the way that Microsoft plans to show revenue from Windows 10 on its books. Mr. Ives reckons that the OS could spark off a new golden age at the firm.

Bringing in the cloud golden age

“Microsoft’s laser-focus on software versus hardware with a massive product cycle in its back pocket leaves it well positioned to enter the “golden age” of cloud computing with Windows 10 front and center as a major potential catalyst,” says Ives.

 

Ives thinks that Microsoft  will do very well off of its future in the cloud business. Azure is the second biggest cloud service out there after Amazon Web Services.

Ives was happy to see Satya Nadell “rip off the Band-Aid” with his $7.6bn write-down of the Nokia business. He, like most on Wall Street, wants to see a Microsoft that leaves hardware on the back burner in order to catch the future of business software. Mr. Nadella seems more than willing to oblige that wish.

Mr. Ives thinks the firm’s “best cloud days are ahead given positive checks from the field around solid uptake of key cloud products.”

Losing Windows 10

There has been a lot of talk about the effect of Windows 10 on Microsoft on Wall Street. Some analysts, like Walter Pritchard and Steven Rogers from Citigroup are worried that success with the OS could lead the firm down the wrong path.

Mr. Ives reckons that despite the low returns from the OS in the short run, it is the perfect vehicle to carry the cloud business forward.

Windows 10 is going to bring businesses into the Microsoft cloud if Mr. Ives’ vision is true. In the short term, however, Microsoft is facing headwinds from those on Wall Street who are still unsure about its vision for the future of the office.

Heather Bellini, of Goldman Sachs is one of the most critical about Microsoft’s prospects with the new operating system. She says that firms aren’t going to upgrade right away, and consumers are going to get the OS for free. That means very low sales for the first few quarters of Windows 10. The problems don’t end there.

Bellini says clients should sell Microsoft and has a price target of $38 on shares. Ives’ hopeful vision of a Microsoft “golden age leads” him to put a $53 price target on the firm.

Microsoft will reveal is numbers for the June quarter on July 21 after the market closes. We’ll see who is right in the short term when Microsoft shows off those figures.

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