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.