Microsoft Corporation (NASDAQ:MSFT) will report FQ214 results on Thursday, January 23rd, after the market close.This will be the 2nd quarter with Microsoft’s increased transparency, guidance and new business segmentation. Analysts at Bernstein Research believe that if overall earnings and guidance are in-line with expectations, as they expect, the Cloud and subscription data could be important catalysts for the stock.

Microsoft

Analysts expect FQ214 revenue of $24.3B, 2.6% above consensus expectation of $23.7B.

  • They forecast Devices and Consumer (D&C) revenue of $11.2B, with 7% YoY growth in D&C-licensing, impacted by weak PC shipments more than offset by increased Xbox and Surface sales.
  • They expect Commercial revenue of $13.1B, with strong growth of 13% driven by both corporate licensing and the company’s cloud and subscription business. They estimate Commercial-other revenue of $2.0B up 46% YoY. They estimate that the cloud business has seen very strong growth recently, and believe that this will continue driven by secular trends towards cloud computing, superior ROIs for customers and Microsoft’s value proposition.

Analysts model FQ214 operating margin at 31.4%, and EPS of $0.77.

Microsoft recently changed the way it reports, and analysts at the research firm believe the new key performance indicators are crucial in helping investors understand the business and specifically the move to Cloud and subscription. They expect that management will supply incremental additional data that will aid investors in understanding the transition and hope that the company will supply long-term guidance for the move to Cloud and subscription similar to Adobe’s long term guidance on subscribers1 .

Analysts watch out for update on the move to Cloud and subscription; Windows 7 and Windows 8 adoption; Xbox and Nokia.

Microsoft’s Investment Conclusion

Microsoft Corporation (NASDAQ:MSFT): ($44 TP, Outperform): Analysts believe the current share price embeds an unrealistically bad scenario of no to negative perpetual growth, billions of dollars of annual cash drain from Search and Mobile into perpetuity, and tens of billions of dollars of additional value destruction through ill-fated acquisitions and investments. Instead, analysts believe that the move of Microsoft’s enterprise business to the cloud will generate significant revenue and EPS upside and will more than replace, over time, weakness or problems with Windows.