Microsoft Q4 preview: Where next for MSFT stock?

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Josh Warner
By :  ,  Market Analyst

When will Microsoft report Q4 earnings?

Microsoft is scheduled to release fourth quarter earnings covering the three months to the end of June after US markets close on Tuesday July 26. The company plans to hold a conference call at 1430 PT, or 1730 ET.

 

Microsoft Q4 earnings consensus

Wall Street believes Microsoft will report a 13.8% rise in revenue in the fourth quarter to $52.5 billion and forecast diluted EPS will rise 5.9% from last year to $2.30.

If Microsoft meets expectations in the final quarter then it is on course to report a 18.6% rise in annual revenue to $199.3 billion and a 19.2% jump in EPS to $9.50.

 

Microsoft Q4 earnings preview

Microsoft is expected to outperform most of its Big Tech rivals this quarter. Only Alphabet is forecast to deliver stronger growth in what has proven to be a particularly difficult period for most.

Microsoft’s revenue is expected to grow thanks to higher sales across the board for its digital products and services, while earnings should increase as higher profits from its cloud-computing and software counter a drop from its hardware division. However, rising costs means overall earnings growth will continue to lag sales.

It is worth noting that Microsoft is set to grow both its top and bottom lines despite tough comparatives from the year before, when earnings surged over 48% higher as demand for tech soared during the pandemic. We can also expect the strength of the US dollar to weigh on results as numerous multinational firms tempered expectations. Microsoft makes over half of its sales outside of the US.

Its cloud computing division is forecast to deliver the strongest growth this quarter thanks to increased demand for the likes of Azure. Its Productivity and Business Processes unit, which relates to the likes of its Office software and subscriptions, its Dynamics 365 solutions and its social media platform LinkedIn, should also deliver strong double-digit growth. The softness will come from More Personal Computing, which is responsible for selling Microsoft’s array of hardware from Xbox gaming consoles to Surface PCs, as well as licenses for its popular Windows operating system, as demand for hardware wanes.

Below is an outline of what to expect in terms of revenue and earnings from each division in both the fourth quarter and the full year, according to the latest consensus numbers taken from Bloomberg:

Revenue (Billions)

Q4E

YoY Growth

FY2022E

YoY Growth

Prod/Business Processes

$16.7

14%

$63.4

18%

Intelligent Cloud

$21.1

21%

$75.4

26%

More Personal Computing

$14.7

4.2%

$60.0

11%

Operating Profit (Billions)

Prod/Business Processes

$7.3

13%

$29.7

22%

Intelligent Cloud

$8.9

14%

$32.4

24%

More Personal Computing

$4.7

-3.1%

$20.5

5.2%

 

Wall Street is confident that Microsoft can deliver another year of double-digit growth in the 2023 financial year, pencilling-in 14% revenue growth and a 12% rise in EPS. The outlook will be pivotal in setting expectations for the new year, which is plagued by rampant inflation and a weaker growth outlook. Although aspects of Microsoft’s business could suffer in the event of an economic downturn, particularly for hardware, analysts remain bullish that the majority is well-shielded as demand for vital products and services like Azure, Dynamics 365, Windows and its Office software should hold-up even if the environment deteriorates. Microsoft also has the ability to wield its cash balance of over $100 billion to buyback shares and help bolster its EPS and offset any weakness going forward.

 

Where next for MSFT stock?

Microsoft shares are down 23% since peaking in late 2021 but have showed signs of consolidating since hitting a 13-month low of $241.50 back in May, having been capped by a ceiling of $268.40 during the last five weeks.

The stock has risen 4.8% during the past six trading sessions, providing hope that an uptrend could be on the cards and that the results can provide the necessary catalyst. It needs to break above the $268.40 before it can target $275, which is in-line with the 100-day moving average. Beyond there, it can look to climb towards $290. The 52 brokers that cover Microsoft are extremely bullish, with all but three believing the stock offers a buying opportunity following the heavy selloff this year. The average target price sits at $345.50, implying there is over 30% potential upside over the next 12 months.

We could see Microsoft shares come under renewed pressure if the current ceiling holds. Notably, average trading volumes have seen a mild decline over the last five days, suggesting the recent rise could fail to gain momentum – although we could see interest spike after the results are released. The hope for investors is that, should the stock drop, the next low will be higher than the last bottom at $250 to show an uptrend is still in play, but we could see shares drift back toward the 13-month low should it drop below this level.

Microsoft stock could breakout after its upcoming earnings

 

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