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Microsoft earnings preview: Stock rises on remote gains

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: July 17, 2020

Microsoft will release its fiscal fourth-quarter earnings on Wednesday with the stock soaring to new highs a few weeks ago.

Analysts polled by Thomson Reuters expect Microsoft to post revenues of $36.5bn in the quarter as compared to $33.7bn in the same quarter in 2019. Its earnings per share are expected to rise from $1.37 to $1.38 over the period.

Technology stocks like Microsoft have risen this year despite the pandemic. Microsoft stock closed at $204.85 on Thursday, the stock is up almost 28% this year.

Among other tech stocks, Amazon, Alphabet, and Apple are respectively up 73%, 15.3%, and 31.3% year to date. All these companies have a market capitalization topping $1tn.  Strong gains in tech stocks have powered the Nasdaq Composite Index to record highs and it is up around 18% so far in 2020.

Tech stocks have not seen much impact from the pandemic and some of them have instead benefited from the stay at home orders and change in consumer behavior.

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Microsoft’s chief executive Satya Nadella (pictured) in the company’s fiscal third-quarter earnings release.

Speaking about the fourth-quarter outlook, Microsoft’s chief financial officer Amy Hood said during the third-quarter earnings call: “In our consumer business, we expect continued demand across Windows OEM [original equipment manufacturer], Surface, and Gaming from the shift to remote work, play, and learn from home.”

Hood added: “Our outlook assumes this benefit remains through much of quarter four, though growth rates may be impacted as stay-at-home guidelines ease. We assume advertising spend levels from March do not improve in quarter four, which will impact Search and LinkedIn.”

Wedbush raised Microsoft’s target price from $220 to $240 while Morgan Stanley raised its from $198 to $230 on 9 July.

“In many cases we are seeing enterprises accelerate their digital transformation and cloud strategy with Microsoft by six to twelve months as the prospects of a heavy remote workforce for the foreseeable future now looks in the cards with this COVID-19 backdrop,” said Wedbush analyst Dan Ives.

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.