Reports Q2, 2021 results on Tuesday, January 26, after market close
Projected Revenue: $ 40.23 Billion
EPS Expectation: $ 1.64
When technology giant Microsoft (NASDAQ 🙂 releases its latest quarterly results tomorrow, investors will be keen to know if the pandemic-driven rise in demand will continue through 2021.
The Redmond, Washington-based software giant was a net beneficiary during the pandemic who forced workers to stay at home and connect through devices and services the company sells.
Since the outbreak of the pandemic, companies have accelerated the shift to Microsoft's Azure computer services on the Internet and to online subscriptions for Office software that come with teleconferencing programs and home working tools. In the previous quarter, Azure revenues were up 48%, compared to an increase of 47% in the previous quarter.
For three consecutive years, Azure revenues have nearly doubled each quarter, and that growth rate has been closely monitored by investors.
Aided by this unexpected surge in demand, Microsoft's stock rallied last year years about 35%. This rally pushed the company's market cap to more than $ 1.7 trillion, making it one of the most valuable entities in the world.
But over the past three months, the MSFT stock has underperformed the benchmark. As such, investors are now looking for additional evidence of Microsoft's increase in market share, especially in the cloud computing segment, where the company is fiercely competing with Amazon's (NASDAQ 🙂 Web Service product.
Strategic Cloud Shift
While there is no evidence that Microsoft's dominance is under threat, the most recent earnings should demonstrate that these are the products that will drive sales this year .
During the last quarter, MSFT launched a new version of its Xbox video game console as part of its effort to entice users by offering payment plans, a cheaper model that goes for $ 300, and programs who give buyers a new machine and a subscription with hundreds of games for a monthly fee.
Chief Financial Officer Amy Hood expects strong demand for the new console, according to Bloomberg, and predicts that sales of gaming hardware will increase by 40% in the prior period. Analyst Daniel Ives, who is outperformed and has a $ 260 price target on Microsoft, said in a recent note that the current home working environment "is pushing more enterprises to make the strategic cloud shift with Microsoft across the board with Azure. Growth remains vibrant. . "He added:
"This cloud shift and (work from home) momentum appears to remain and the company will be a major beneficiary of this trend on its flagship Azure / Office 365 franchise for years to come."
Microsoft "represents a rare combination of strong secular positioning and reasonable valuation," Morgan Stanley analyst Keith Weiss wrote in a research note last week citing the stock as a top pick.
For long-term investors, there is no threat to the horizen. Microsoft remains one of the safest bets in the technology field, given the company's attractive dividend policy. Since 2004, when the tech giant first started paying out dividends, its payout has more than quadrupled.
Currently, the annual return is 1% with a quarterly payout of $ 0.56 per share, following the inclusion of a 10% dividend increase announced in September.
Bottom Line
MSFT continues to expand its market share into new areas of the digital economy, while maintaining its leadership with legacy software products such as Windows and Office.
This sustainable advantage will help the company achieve sustainable sales, earnings per share and free cash flow, making it a reliable tech stock to own over the long term.
