With Microsoft's (MSFT) stock now above $200 -- and its market cap above $1.5 trillion -- it's safe to assume that many investors are expecting strong numbers to be shared on Wednesday.
Currently, the consensus among analysts polled by FactSet is for Microsoft to post June quarter (fiscal fourth quarter) revenue of $36.43 billion (up 8% annually), GAAP EPS of $1.36 and non-GAAP EPS of $1.38. And for the September quarter -- Microsoft usually provides sales guidance on its earnings calls -- the revenue consensus is at $35.8 billion (up 8%).
Here are some things to watch as Microsoft reports after the bell on Wednesday and hosts an earnings call at 5:30 P.M. Eastern Time.
1. Fiscal 2021 Guidance
Microsoft typically uses its June quarter earnings call to provide some revenue growth and spending guidance for the next fiscal year. A year ago, the company guided for (among other things) double-digit fiscal 2020 revenue growth and 11% to 12% operating expense growth.
It's possible that Microsoft's full-year guidance will be less specific this time around, given how much macro uncertainty currently exists. But (if that's the case) the company could still provide some high-level comments about how it currently sees revenue and expenses trending in fiscal 2021.
2. Commercial Bookings and RPO Growth
After rising 31% annually during its December quarter, Microsoft's commercial bookings grew just 7% during its March quarter, something it blamed on tough annual comps and a smaller number of contracts being up for renewal. Commercial remaining performance obligations (RPOs - all the commercial revenue that Microsoft has under contract and hasn't yet recognized) still rose a healthy 24% to $89 billion.
CFO Amy Hood did say in April that June quarter bookings growth will benefit from high renewal rates on a larger base of contracts coming up for renewal. However -- echoing many other software firms that have seen COVID-19 impact new deal activity -- she also cautioned that changing sales dynamics will be a headwind, particularly among "industries and segments most impacted by COVID-19."
3. Azure Growth
Azure revenue rose 59% annually during Microsoft's March quarter. And while COVID-19 may have disrupted the signing of some new Azure deals during the June quarter, it has also (as Satya Nadella emphasized during the April call) fueled higher public cloud usage in a number of fields.
Along with Azure's revenue growth rate, keep an eye out for any usage disclosures about Azure services that could be seeing particularly high demand right now -- for example, its virtual desktop services or the Azure Active Directory identity management service.
4. Windows Growth
Weak corporate desktop demand and slower corporate deal closings are headwinds for Windows revenue right now. On the flip side, strong notebook demand is a tailwind, as is growing adoption of Microsoft 365 plans that (among other things) provide Windows licenses and Office 365 subscriptions.
In April, Microsoft guided for its Windows OEM revenue (driven by new PC sales) to rise by a low-to-mid single-digit percentage, and its Windows Commercial revenue (driven by direct sales to organizations) to rise by a mid-single digit percentage.
5. Office and Dynamics Growth
Microsoft guided for its Productivity and Business Processes segment -- it covers the Office and Dynamics business app franchises, along with LinkedIn -- to post June quarter revenue of $11.65 billion to $11.95 billion, up from year-ago revenue of $11.05 billion. The company noted that 80% of this revenue was already covered by existing contracts and renewals, while cautioning that the other 20% was "subject to more volatility in the current environment."
Keep an eye on Office Commercial, Office Consumer and Dynamics growth rates (respectively 13%, 15% and 17% in the March quarter), as well as Office 365 commercial seat growth (20% in the March quarter) and user growth updates shared about the Microsoft Teams collaboration platform, for which paid features are often bundled with Office 365 subscriptions.
6. Surface and Gaming Revenue
With Surface hardware demand strong among remote workers and students, Microsoft guided for its PC/tablet franchise to see low-teens June quarter growth, a major acceleration from the March quarter's 1% growth.
Likewise, with lockdowns having fueled a major uptick in gaming activity, Microsoft guided for its gaming revenue -- it covers Xbox sales, game sales, Xbox game royalties and services such as Xbox Live and Xbox Game Pass -- to grow by a high-teens percentage. The company might issue a softer outlook for the September quarter, given that it just ended production for two of its three Xbox One models ahead of the holiday season's Xbox Series X launch.
7. Capital Spending
Internet/cloud giants have by and large been spending heavily on data center capex this year, thanks in part to recent usage spikes, and Microsoft isn't an exception. Its capex rose 15% annually during the March quarter to $3.9 billion, and Hood forecast the June quarter would see "a material sequential increase" to that number.
8. Stock Buybacks
Microsoft has been spending a healthy chunk of its free cash flow on buybacks for some time, and may have done so once more in the June quarter. The company spent $7.1 billion on buybacks during its March quarter, and $17.2 billion over the first nine months of fiscal 2020.