Microsoft looks set to benefit from a pandemic-fuelled triple-whammy when it announces its latest quarterly earnings after the market closes on Tuesday: a boom in PC sales, surging demand for video gaming, and increased usage of its cloud services as customers were forced to work, play and learn from home.
The gains are expected to be strong enough to overcome the headwinds from a weak economy, which has hurt many of the company’s small and medium-sized customers and put a dent in broader IT spending.
Wall Street expects the US software group to register a 9 per cent increase in revenue, to $40.2bn. Pro forma earnings per share are expected to reach $1.64, up from $1.51 a year ago.
Microsoft had already warned of a slowdown in the final quarter of 2020, from the previous quarter’s 12 per cent revenue growth rate. Though PC sales have been strong — lifting Intel’s latest earnings well above expectations last week — Microsoft has faced a tough comparison with the final months of 2019, when demand for Windows was boosted by the end of support for Windows 7.
As a result, Wall Street is expecting an 8 per cent decline in Windows revenue in the quarter. But with sales of new Xbox game consoles boosting gaming, the company’s More Personal Computing division is still set to show revenue growth of 2 per cent, to $13.6bn.
The biggest jump in the quarter is expected to come from Microsoft’s Intelligent Cloud division, which includes its Azure cloud platform as well as server software. Azure revenue growth is projected to fall slightly from the previous quarter’s 47 per cent, but still be strong enough to overcome a slight decline in the server business and lift the division’s overall revenue by 16 per cent, to more than $13.7bn.
Meanwhile, the Productivity and Business Processes division is expected to report revenue of $12.88bn, up 9 per cent, led by continued strong demand for Office 365, which grew 20 per cent the previous quarter.