Microsoft plans to release its quarterly earnings after the stock market closes on Monday afternoon.
Not to spoil the surprise, but Microsoft almost certainly pulled in a ton of money during the last three months of 2014. How much, and where, exactly, is what Wall Street analysts are going to focus on.
Here are some things to watch out for:
Holiday sales. Microsoft, as usual, flooded the airwaves with ads (this year focused on selling its Surface Pro 3 tablet), and offered discounts and software bundles to get folks to buy an Xbox. Microsoft’s occasionally maligned Surface unit narrowly turned a profit in the three months ended in September (by a metric that excludes advertising and other costs). Did the Surface, mammoth holiday ad campaign and all, turn in another positive performance?
Record revenue, lower profits. Analysts polled by Bloomberg think Microsoft racked up a record $26.3 billion in sales in the quarter. But Microsoft’s profit is expected to dip, to about $6 billion (71 cents a share, excluding one-time items), from $6.56 billion (78 cents a share) a year earlier. Why? Part of the reason is Microsoft is now firmly embedded in the hardware business after buying Nokia‘s phone unit. Hardware is typically a lower margin business than software. Think of it this way: for every phone or Xbox Microsoft sells, the company has to buy the parts and labor to put it together. Copies of Microsoft Office software can be sold by the millions with much less in embedded costs. Holiday sales, weighted as they are toward gadgets, tend to drag on Microsoft’s profitability.
More on the cloud shift. Microsoft has set a high bar for its cloud computing group. Customers are plugging into the company’s servers and picking up web-based copies of Office at a pace few would have expected a few years ago, helping Microsoft avoid the doldrums of some other business-focused tech giants. In the previous quarter, Microsoft’s business-focused cloud group reported revenue growth of 128%. Wall Street is hungry for more good news, particularly after Microsoft’s stock price rose 30% in the last year.
Impact of Windows 10, other freebies. Among the reasons Microsoft’s story isn’t universally loved: There’s a lot of “free” being thrown Redmond these days. Free versions of Office for tablets and phones made by Microsoft competitors, free upgrades to the coming Windows 10 for users of Windows 7 and Windows 8.1, free copies of Windows to makers of small tablets who make Bing the machine’s default search engine. Microsoft hasn’t extended these offers to the business customers that account for the bulk of its profits, but look for a question or two from analysts on Monday about how close the company may be to giving away the farm in search of increased market share.
Microsoft is expected to release its report a few minutes after the 1 p.m. close of stock trading. The webcast conference call with Wall Street analysts is scheduled for 2:30.