What to Watch With Microsoft’s Earnings

April 27, 2021

Microsoft stock

We’re in the thick of earnings season in the US and other global stock markets. First-quarter results are being closely monitored to see how businesses are recovering from the global Covid-19 pandemic.

That’s perhaps not the case with the technology giants that dominate the US stock market. One of the biggest companies, cloud, productivity tools and gaming giant Microsoft Corporation (NASDAQ: MSFT), will report its earnings after the US market close today (Tuesday 27 April).

Other tech giants to report numbers this week include Apple Inc (NASDAQ: AAPL) and Amazon.com Inc (NASDAQ: AMZN).

Yet the two “A” tech giants tend to be viewed as more sexy investments. All three, in my view though, are worth holding over the long term.

Microsoft, in particular, has quietly seen its share price advance this year on higher expectations. Shares are up nearly 20% so far in 2021 and its market cap is now approaching US$2 trillion.

So, what should investors watch when the tech giant reports its earnings?

Cloud progress

Microsoft’s cloud computing business, Azure, has been the main growth driver for the company over the past few years. Don’t expect that to change.

Investors are hoping to see accelerated growth in the Intelligent Cloud division that includes Azure. Microsoft is projecting US$14.7-14.95 billion in revenue for that division when it reported its fiscal second-quarter 2021 earnings in January.

Having posted 23% year-on-year growth in that quarter, the Intelligent Cloud business continues to be a robust revenue and profit generator for Microsoft.

Finally, whether Azure is winning some big clients (and stealing market share away from Amazon’s AWS) will be high on the must-watch list.

Beat and raise

Similar to many other companies being monitored in the technology space, Microsoft will be under close scrutiny to see whether the company raises its forward guidance.

For investors, just “beating” expectations is no longer enough to warrant a positive share price reaction.

Companies in the tech space are increasingly being asked by investors to project stellar future numbers for its business.

Whether Microsoft, and many of the other tech giants, can exceed extremely high expectations is anyone’s guess.

Regardless for longer term investors, Microsoft’s earnings potential over the next decade looks promising as it continues to expand in cloud, online gaming and its subscription office productivity suite.


Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Microsoft Corporation.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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