Microsoft Corporation (MSFT) Cloud Shift Could Offer Q1 Upside

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Microsoft Corporation (NASDAQ:MSFT) will report the results from its first fiscal quarter of 2014 tomorrow after closing bell. This will be the first report done under the company’s new reporting structure announced months ago. It will also be the first time the company provides key performance indicators which should help investors better track the company’s progress in current business trends.

Microsoft Corporation (MSFT) Cloud Shift Could Offer Q1 Upside

Expectations for Microsoft’s report

Bernstein Research analysts see potential upside in the company’s revenue and earnings per share this time around because they believe the shift to cloud services is going better than others think. Analysts Mark L. Moerdler, Emily Chan and Garrett Marks are looking for quarterly revenue of $18.1 billion, which is slightly ahead of consensus at $17.8 billion. They’re also ahead of consensus on earnings per share, projecting 57 cents. For operating margin, they’re expecting 32.8%, which is also above consensus.

They believe Microsoft Corporation (NASDAQ:MSFT) will report Devices and Consumer revenue of $7 billion with a decline of 5% year-over-year. They expect falling PC shipments to play a major role in this decline. For Commercial revenue, they’re expecting $11.1 billion driven by growth in the company’s cloud business. In Commercial – Other revenue, they’re looking for $1.7 billion.

The importance of Microsoft’s new KPIs

The Bernstein analysts said they believe Microsoft Corporation (NASDAQ:MSFT)’s key performance indicators will provide important information on its growth. For example, they’re expecting to see future recognition of total unearned revenue according to quarter, revenue mix, and Dynamics revenue growth.

They also expect to see growth in both Windows Pro and non-Pro revenue through volume licensing. This number will likely help investors see just how strong the company’s commercial Windows business remains and also its transition to long-term contractions. The analysts believe the new metrics will indicate that Microsoft’s corporate Windows business is fine and that the problems exist only on the consumer side of the Windows business.

In tomorrow’s report, they’re also expecting to see company-wide growth in Commercial Cloud revenue, consumer Office 365 Home Premium and commercial Office 365. The analysts believe Microsoft’s Commercial Cloud revenue “will accelerate off of” year-over-year 93% growth.

Microsoft views generally pessimistic, but some firms bullish

Bernstein analysts maintained their Outperform rating and $41 per share price target on Microsoft Corporation (NASDAQ:MSFT). They see Wall Street as “unrealistically” pessimistic and expecting “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.”

In contrast, they believe that Microsoft’s move to the cloud will create upside in revenue and earnings per share and “will more than replace, over time, weakness or problems with Windows.”

Bernstein isn’t the only firm that’s bullish on Microsoft Corporation (NASDAQ:MSFT). Last week Longboard Asset Management, which correctly called Tesla Motors Inc (NASDAQ:TSLA)’s bullish rise, called Microsoft the next Apple Inc. (NASDAQ:AAPL). Jefferies also upgraded the company to Buy last week.

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