Microsoft reports earnings tomorrow (Thursday) after the market close.
The Microsoft stock price is down about 14% from its 52-week high of $50.05, which it hit Nov. 14. Most of the decline came following Microsoft's last earnings report in January, when disappointment over sales in the commercial division dropped MSFT stock 9.3% in one day.
Since then the MSFT stock price has not fully recovered, trading between $40 and $44. Microsoft stock closed Wednesday at $42.99.
If the Redmond, Wash.-based tech giant can show that its transition strategies toward the cloud and mobile are working, it won't need a dramatic earnings beat to move the MSFT stock price.
Microsoft, like longtime partner Intel Corp. (Nasdaq: INTC) and most PC makers, has suffered as PC sales have leveled off in recent years. Investors mainly want to know that Microsoft has a viable plan for future growth.
Here are the details on Microsoft's Q3 earnings...
What to Watch for in Q3 Microsoft Earnings
The numbers: Analysts are looking for earnings per share (EPS) of $0.51, which would be a 25% drop year over year. Only a huge beat will be enough to avoid the fifth straight quarter of year-over-year declines. The forecast for revenue is $21.1 billion, which would be a 3.4% increase over the revenue of $20.4 billion in Q3 of 2014. It would also be the fourth straight quarter of year-over-year revenue increases.
The last quarter: For Q2, Microsoft was in line with estimates on EPS, reporting earnings of $0.71 a share. That was, however, a 9% decline from the same quarter a year earlier. Revenue was $26.5 billion, just above expectations for $26.32 billion.
The stock: As noted earlier, the MSFT stock price is down from its highs of last fall. Microsoft stock fell 12.48% in the first quarter of 2015, and is down 7.3% in 2015. But MSFT stock is still up 8% over the past 12 months. Microsoft declared a quarterly dividend of $0.31 a share on March 10.
Now here's what could have an impact on the Microsoft stock price...
Earnings News That Could Move the MSFT Stock Price
After what happened in January, Wall Street will have a close eye on Microsoft's commercial licensing division. That includes enterprise sales of such products as Azure, Office 365, Windows, and server products.
It's Microsoft's biggest division by far, and one where it's pushing hard on its cloud products like Azure and Office 365.
Microsoft needs to show it's making headway here, so a good showing by this division definitely would move MSFT stock up.
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The Devices and Consumer Licensing division includes sales of Windows and Office to consumers. This division will suffer from slower PC sales in Q3, but should fare better in the second half of the year with the late July release of Windows 10.
Another key division is Phone Hardware, which includes the mobile phone business acquired from Nokia last year. Progress here would be a welcome sign that Microsoft is finally getting traction in mobile, and would surely help the MSFT stock price.
Microsoft's other mobile hardware venture, the Surface tablet, is rolled into the Computer and Gaming Hardware division along with the Xbox. But Microsoft will break out the Surface numbers if they're good.
One negative that will drag down Microsoft's Q3 earnings is the strong U.S. dollar. Goldman Sachs (NYSE: GS) analysts estimate that the dollar will take a $940 million bite out of Microsoft revenue.
But whatever the impact of the dollar, Wall Street will above all react to signs that Microsoft's "mobile first, cloud first" strategy is not empty rhetoric.
Time to Buy MSFT? The slump in the MSFT stock price shows that many investors are discouraged, but it's a buying opportunity for those who believe the company's turnaround will succeed. Money Morning Capital Wave Strategist Shah Gilani is one market expert that has believed in Microsoft's turnaround for more than a year. Here's why he's convinced that Microsoft stock is on sale right now...
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.