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Microsoft Q1 FY21 earnings preview

We examine when Microsoft will report its first quarter FY21 results, what analysts currently think of the stock, as well as look at the Q1 guidance management previously provided the market.

Microsoft Q1 FY21 earnings preview Source: Bloomberg

When will Microsoft report its Q1 results?

Tech giant Microsoft Corporation (NASDAQ: MSFT) is set to report its first quarter, fiscal 2021 results next Tuesday, October 27.

On the same day an adjoining conference call will be hosted by Microsoft’s Satya Nadella and EVP & CFO Amy Hood – 2:30 PM Pacific Time.

Microsoft share price outlook: Analysts remain bullish heading into the Q1

Analysts remain overwhelmingly optimistic around Microsoft heading into the company’s first quarter earnings, with the stock commanding a Buy rating on average, according to MarketWatch.

With Microsoft closing out last week's session at $219, the average analyst price targets of $235.40 suggests that the professional investment community believe the stock still has room to run higher.

Indeed, despite already gaining 36% YTD, many analysts have upped their price targets on MSFT in recent months, as optimism returns to equity markets following a horror start to CY20. Mizuho last week lifted their price target on MSFT to $255; UBS to $243, RBC to $250 and Deutshce Bank to $245.

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A future made of clouds

Overall, the current macro-economic environment remains accommodative for equity markets, with US Fed Chair Jerome Powell recently stating that interest rates will remain low for 'however long it takes'. Besides that, far from being battered as a result of the coronavirus pandemic – big tech such as Microsoft, Facebook, Netflix and Amazon look to have used this period as a means to shore up their already dominant positions in their respective industries.

The pandemic, which has seen the digitisation of economies accelerate, in particular has the potential to help the likes of Microsoft. Cloud infrastructure, which plays a central role in this digitisation narrative, has particularly excited analysts and onlookers, with UBS analyst Karl Keirstead, last week initiating coverage on MSFT with a Buy rating and $243.00 price target. Mr Keirstead placed a particular focus on Microsoft’s Intelligence Cloud division, saying he saw:

‘Potential for upside to Azure revenue estimates in 2021 and 2022 as enterprises move forward with plans to accelerate cloud infrastructure adoption.’

Azure has become an ever-important cog in the Microsoft machine – forming an integral part of the company’s growth narrative. Ten years ago Microsoft traded on a sub 10x earnings multiple; it last traded at ~38x earnings. The company’s growing dominance in cloud has likely played an instrumental role in that dramatic re-rating. In Q4 of FY20, Amy Hood, Microsoft’s CFO, said:

‘Our commercial cloud surpassed $50 billion in annual revenue for the first time this year. And this quarter our Commercial bookings were better than expected, growing 12% year-over-year.’

Looking forward, Microsoft said it expected Cloud Intelligence revenues of $12.55-12.8bn in Q1 FY21 – implying an impressive YoY growth rate of between 16.2% to 18.5%.

Other bits and pieces

Beyond that, in Q1 FY21 the company said it expected to bring in revenues of between $11.65-11.9bn from its Productivity and Business processes segment and revenues of between $10.75-11.35bn from its More Personal Computing segment. MFST also guided for first quarter COGS of between $10.75-10.95bn against an effective tax rate of around 16%.

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