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Microsoft Q4 earnings preview: Analysts expect a big cloud win

Microsoft CEO Satya Nadella addresses a Microsoft media event in New York, Wednesday, Oct. 26, 2016. Microsoft wants to bring life to common computing experiences by adding a third dimension to widely used software such as Windows and Office. (AP Photo/Richard Drew)

Microsoft CEO Satya Nadella will provide commentary following the company’s Q4 2021 earnings report. (AP Photo/Richard Drew)

Microsoft (MSFT) will report its Q4 2021 earnings after the closing bell on Tuesday, with analysts looking toward how much the tech giant has managed to continue to build out of its cloud empire.

Here’s what analysts are expecting from the Windows maker in the quarter, as compiled by Bloomberg, versus how it performed in Q4 2020.

  • Revenue: $44.25 billion expected versus $38 billion in Q4 2020

  • Earnings per share: $1.92 expected versus $1.46 in Q4 2020

  • Productivity and Business Processes: $13.9 billion expected versus $11.8 billion in Q4 2020

  • Intelligent Cloud: $16.4 billion expected versus $13.4 billion in Q4 2020

  • More Personal Computing: $13.8 billion expected versus $12.9 billion in Q4 2020

Microsoft’s cloud business has been the key to its impressive stock performance in recent years, capping it off with the company’s market capitalization closing about $2 trillion for the first time in its history in June. And analysts are expecting more from the business in Q4.

“We expect another ‘beat and raise’ special from Redmond with Azure growth numbers (45%+ YoY) that exceed whisper expectations and headline numbers that comfortably exceed the Street’s $44 billion and $1.90 estimate,” Wedbush analyst Dan Ives wrote in a note ahead of Microsoft’s earnings.

“We are seeing deal sizes continue to increase markedly as enterprise-wide digital transformation shifts are accelerating with CIOs all focused on readying their respective enterprises for a cloud driven architecture,” he added.

The pandemic forced many companies to build out capabilities for their employees to work from home, driving businesses to spend more on cloud resources. And with more employees seeking work-from-home opportunities, firms will need to keep meeting those requests, ensuring they continue to invest in cloud capabilities moving forward.

BofA Global Research’s Brad Sills, meanwhile, expects 2% to 3% upside to Microsoft’s total Q4 revenue estimates, based on sustained Azure and Office 365 strength.

While the cloud has been a key growth driver for Microsoft in recent years, the market is far from oversaturated, even with competitors like Amazon (AMZN) and Google (GOOG, GOOGL) to contend with.

“We believe the cloud shift is just beginning to take its next stage of growth globally,” Ives wrote. “We believe this disproportionately benefits the cloud stalwart out of Redmond, as [CEO Satya Nadella] & Co. are so well positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery.”

While Microsoft’s cloud performance is sure to be the talk of the earnings announcement, analysts and investors will likely be hoping to hear commentary from Nadella on the Department of Defense’s recent decision to pull its 10-year, $10 billion Joint Enterprise Defense Initiative (JEDI) contract from Microsoft.

Project JEDI was designed to modernize the Pentagon’s communications and technological capabilities for the 21st century. But it was mired in controversy due to accusations that Microsoft beat out Amazon for the deal thanks to pressure from former President Donald Trump.

In a lawsuit, Amazon claimed that Trump pressured the DOD to choose Microsoft for the contract as a means to hurt Amazon CEO Jeff Bezos. Bezos owns The Washington Post, which Trump accused of writing “fake news” about him.

Now the contract will be spread out across multiple cloud vendors rather than a single company, which could benefit both Microsoft and Amazon in the long run.

Microsoft’s Q4 earnings also follow its unveiling of Windows 11, its next-generation operating system. But the company says, consistent with prior precedent, it will defer any revenue of sales of Windows 11 licenses made prior to general availability later this holiday season. So don’t expect any impact from the new OS in Q4.

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