MSFT Microsoft Corporation

By Jay Greene 

Microsoft Corp. is scheduled to report fiscal third-quarter earnings after the market closes Thursday. Here's what to expect.

EARNINGS FORECAST: Analysts surveyed by S&P Global Market Intelligence expect Microsoft to report earnings of 85 cents a share. Microsoft no longer reports adjusted figures, reflecting accounting changes it adopted at the start of the fiscal year.

REVENUE FORECAST: Analysts expect revenue of $25.78 billion, up from $23.21 billion a year earlier. The year-ago figure reflects the new accounting standard.

WHAT TO WATCH:

AZURE'S RISE: Microsoft's financial reports the past few years have had a familiar refrain: the surge of the company's Azure cloud-infrastructure services and Office 365 online-productivity service for businesses. Those increasingly important pieces of its operations have helped the software giant leap the chasm from being a once-dominant vendor of legacy software to an emerging power in cloud-computing era. Morgan Stanley analyst Keith Weiss expects Azure to grow 97% in the quarter, and commercial Office 365 sales to climb 38% in the period. Microsoft doesn't disclose revenue for those businesses, but in the fiscal second quarter it said Azure jumped 98% and commercial Office 365 grew 41%.

HYBRID HYPE: Much of Microsoft's success in cloud computing is tied to its focus on the so-called hybrid cloud, in which customers mix cloud services with software running on servers in their own data centers. While rivals, including cloud-infrastructure market leader Amazon.com Inc., also offer hybrid services, Microsoft has capitalized on its legacy as a seller of server software. Last fall, Microsoft debuted Azure Stack, a technology that allows developers to write programs that span private data centers and the cloud. "Early checks cite 'pretty good' demand and pent-up interest as Microsoft's hybrid-cloud message -- that customers don't need to re-engineer and move their workloads and can keep running them on-premise with an Azure-like experience -- is resonating," Deutsche Bank analyst Karl Keirstead wrote in a recent report.

MARKET CAP TUSSLE: The rise of Microsoft's cloud-computing business has fueled its value as a publicly traded company. Its stock has doubled in the past 2 1/2 years, and now jockeys daily with Alphabet Inc. and Amazon to be the No. 2 stock globally measured by market capitalization, behind Apple Inc. In recent periods, the company's shares have surged on surprisingly strong quarterly results and upbeat guidance.

SUPPORTING ROLE FOR WINDOWS: A month ago, Microsoft split the engineering group that develops products under the Windows banner among two separate divisions. Stifel Nicolaus & Co. analyst Brad Reback expects Microsoft to address the change on its call with investors. The move "sends a strong signal of the supporting, and not leading, role Windows will likely take in coming years and we like the continued emphasis on hybrid cloud and AI," he wrote in a research note. In the quarter, Mr. Reback expects the More Personal Computing unit, which includes the Windows business, grew 5% to $9.2 billion, amid flat personal-computer sales. The unit likely benefited from corporate customers continuing to upgrade to Windows 10, which launched in 2015, he said.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

April 26, 2018 05:44 ET (09:44 GMT)

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