Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Microsoft Earnings Preview: Recent Acquisitions To Drive Future Growth 

By Investing.com (Haris Anwar/Investing.com)Stock MarketsJan 25, 2022 12:28
uk.investing.com/analysis/microsoft-earnings-preview-recent-acquisitions-to-drive-future-growth-200508322
Microsoft Earnings Preview: Recent Acquisitions To Drive Future Growth 
By Investing.com (Haris Anwar/Investing.com)   |  Jan 25, 2022 12:28
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Reports Q2 2022 results on Tuesday, Jan. 25, after the market close
  • Revenue Expectation: $50.65 billion
  • EPS Expectation: $2.31

Investors are likely to see a familiar growth pattern when Microsoft (NASDAQ:MSFT) releases its latest earnings report after the Wall Street close later today—the tech giant’s cloud-based software will have fueled robust sales and profit expansion.

The Redmond, Washington-based company's quarterly results have topped analysts’ earnings estimates over the last 11 straight quarters, showcasing the success of Chief Executive Officer Satya Nadella’s strategy to focus on cloud computing, which provides data storage and runs applications for corporations.

In Microsoft’s most recent earnings report in October, sales of Azure and other cloud services increased 50%, just shy of the 51% rate in the prior quarter. Microsoft is making around 70% gross margins on cloud sales to businesses, a number that many Wall Street executives can only dream of.

MSFT Weekly Chart
MSFT Weekly Chart

Microsoft shares rose more than 50% last year, the stock's 10th straight year of positive returns, as well as its ninth straight year providing a double-digit advance.

Still, over the short run, Microsoft and other high-growth stocks are under pressure as rising interest rates reduce their investment appeal. In 2022, MSFT shares are down about 12%, in line with the general sell-off in technology stocks.

Revenue from Office 365 to business customers rose 23% in the company’s fiscal 2022 first quarter, helped by the software's advanced features. Clearly, in addition to the cloud segment where Microsoft competes with Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL), sales of the company’s legacy businesses are also expanding.

Profitability from these services is expected to expand further as the company implements price hikes. The cost of one type of subscription, the premium Office 365 E5, is increasing by 9% per user per month starting Mar. 1, while the price of the more affordable Office 365 E1 will go up by 25%.

Commercial subscriptions to Office 365 represented about 18% of Microsoft’s revenue in the fiscal year that ended June 30. According to analysts’ estimates, the move will add $5 billion to the company’s revenue by 2022.

Acquisition Spree

Loaded with cash and earnings momentum, Microsoft is setting the stage for future growth by aggressively buying companies that can improve its already strong competitive edge and offerings. In one such move this month, the company agreed to buy Activision Blizzard (NASDAQ:ATVI) in an all-cash deal valued at about $75 billion, its largest acquisition so far, to further expand its videogame business.

This deal, expected to close next year, will help expand Microsoft’s Xbox console appeal and push it into the fast-growing markets for mobile gaming and the metaverse, making Microsoft the world’s No. 3 gaming company.

According to FactSet, analysts estimate that Activision’s sales in 2021 totaled $8.7 billion, while Microsoft reported $15.4 billion in gaming revenue for the fiscal year through June, accounting for about 9% of its total sales.

Last year, Microsoft made its second-largest acquisition, spending $16 billion for artificial intelligence company Nuance Communications (NASDAQ:NUAN), to capture growth in the healthcare market.

These growth initiatives, combined with the company’s leading position in the cloud segment, make Microsoft an ideal candidate for long-term investors. Indeed, the majority of analysts surveyed assigned a buy rating to MSFT.

MSFT Consensus Estimates
MSFT Consensus Estimates

Chart: Investing.com

Of 45 analysts polled by Investing.com who cover Microsoft, 42 have an outperform rating on the stock, with the average 12-month price target or $368.52 implying 24% upside potential.

Bottom Line

Microsoft’s earnings release later today will likely show that the company remains in a strong growth phase, helped by its cloud computing business. The stock’s current weak spell offers a good buying opportunity for long-term investors.

Microsoft Earnings Preview: Recent Acquisitions To Drive Future Growth 
 

Related Articles

Microsoft Earnings Preview: Recent Acquisitions To Drive Future Growth 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Fandish Sufiyan Ahmed
Fandish Sufiyan Ahmed Jan 25, 2022 22:23
Saved. See Saved Items.
This comment has already been saved in your Saved Items
OK thanks for your birthday 🎂
durga bdr Ranamgr
durga bdr Ranamgr Jan 25, 2022 22:23
Saved. See Saved Items.
This comment has already been saved in your Saved Items
happy birthday
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email