At the backdrop of registering their worst single-day fall (-4.8%) since 2011 on October 10, three major S&P 500 tech companies will be reporting their quarterly results this week. Microsoft (MSFT) is set to announce its first quarter 2019 results on Wednesday evening, followed by Amazon (AMZN) and Alphabet (GOOGL) on Thursday evening.
Analysts expect Microsoft’s earnings to climb 14% year-over-year to $0.96 per share and revenue is predicted to jump 14% to $27.9 billion for the recently-ended quarter. More than 90% of the analysts covering Microsoft have rated the stock either “Strong Buy” or “Buy”. Shares of the tech bellwether, which inched up 0.15% to $108.66 on Friday, have a consensus 12-month price target of $124.
Even though the October sell-off pulled down the stock prices of the tech companies, analysts are bullish on Microsoft ahead of the company’s earnings report. The Redmond, Washington-based firm has not missed the top and bottom line predictions in the past nine quarters. When the company reported its third quarter 2017 results in April 2016, it topped the earnings estimates and slightly missed on the revenue projections.
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The company beat analysts’ forecast for Q4 earnings and revenue by posting a non-GAAP EPS of $1.13 and revenue of $30.08 billion. Analysts had predicted earnings of $1.08 per share and revenue of $29.3 billion. Also, GAAP EPS increased 7% to $1.14 in the fourth quarter. Revenue from Azure, Microsoft’s cloud business, grew 89% year-over-year.
Once again, Azure is expected to power the results for the first quarter. At the end of 2017, Microsoft’s share in the cloud business stood at 23%, while it’s rival Amazon, which offers cloud services through its AWS division, topped with 40% share. For the quarter ended September 30, Azure is expected to continue its 90-ish percentage growth achieved in the recent quarters.
Apart from the Azure revenue growth, Wall Street will be keenly looking at how the software giant has performed in its legacy Windows and Office businesses. Revenue from the gaming business and Xbox live active users count will also be watched closely by the investing community.
The company has increased its dividend every fiscal year since 2010 and last month, it hiked the quarterly dividend to $0.46 per share, up 9.5% from the $0.42 per share quarterly dividend awarded in the last year. This dividend is payable December 13, 2018, to shareholders of record as of November 15, 2018.
The stock, which climbed to its all-time high ($116.18) on October 3, dropped to just over $104 when the tech sector plunged during the second week of this month. Shares of Microsoft have rallied 27% so far this year and 39% in the past 52-week period.
Shopify Inc. (SHOP) is set to report third quarter 2018 earnings results on Thursday, October 25. Analysts expect the company to report a loss of $0.02 per share on revenues of $257 million. The company has consistently topped expectations over the past four quarters and can be expected to stay on track to beat them this time too.
For the third quarter, Shopify provided an outlook for revenues of $253 million to $257 million and for the full year of 2018, the company’s revenue guidance is in the range of $1.01 billion to $1.02 billion.
In the second quarter of 2018, the company’s revenues grew 62% year-over-year to $245 million while adjusted EPS stood at $0.02. Reported net loss was $24 million or $0.23 per share. Subscription Solutions revenue grew 55%, driven by growth in monthly recurring revenue (MRR).
Consistent recurring revenue increases in the subscription segment can be an indicator of underlying strength. The recurring revenue growth is expected to continue in the third quarter as well which can be taken as a positive sign.
Shopify’s slowing sales growth, continued losses and high costs remain a concern. The company is investing significantly in expanding into new markets. Shopify is also looking at opening brick-and-mortar stores and opened its first one in Los Angeles last week. Depending on the performance of this store, we can expect to see some initiatives going forward.
Looking ahead, Shopify is expected to benefit from the growth in ecommerce. The stock gained 27% thus far this year but looking at the past three months, the stock has dropped 24%. The slowdown in sales growth has impacted shares negatively. If the company tops expectations for the third quarter, the stock is expected to see a pickup.
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