What To Look For In Microsoft’s Earnings Today

@alex / 10:53 am PST • January 26, 2015

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Microsoft is scheduled to report its earnings from the fourth calendar quarter today after the bell. The company is expected to earn $0.71 per share on revenue of $26.33 billion. Keep in mind that the period reported is the second quarter of Microsoft’s fiscal 2015.

The company had profits of $0.78 per share in the year-ago quarter, meaning that investors are expecting the company to be just under 9 percent less profitable this time around.

Aside from the raw financial performance, investors are going to be looking for the following:

Notes from the company on Bing and the company’s phone assets are progressing towards profitability. Bing has long been a notorious money pit, and the Nokia purchase caused a higher-than-expected impact to the company’s earnings last year.
The company indicated last quarter that it expected to see sequentially greater unit volume of the Surface, so revenue could rise from the $908 million it tallied in the preceding period.
Total phone volume will matter, as well, indicating the health of the company’s mobile strategy heading into the Windows 10 era. In the sequentially preceding quarter, Microsoft sold 9.3 million phones. To break the 10 million mark during the holiday period would be a psychological win for the company.
Windows revenue should be down, given the effects of one-time Windows 8 upgrade revenue that was realized in the second fiscal quarter of 2014 for the company. To refresh you:

During the second quarter of fiscal year 2013, GAAP revenue, operating income, and diluted earnings per share included the net deferral of $1.3 billion of revenue for the Windows Upgrade Offer, the Office Upgrade Offer and Pre-sales, and the Video Game Deferral, and the recognition of previously deferred revenue of $783 million for Windows 8 Pre-sales.

An update to the Office 365 consumer subscriber count is likely, as well, with the company previously reporting a total of 7 million after its fiscal first quarter to a conclusion. Another million subscribers here would be a reasonable accretion.
Can Microsoft’s commercial cloud revenue continue to grow? Last quarter, it was reported to have grown 128 percent on a year-over-year basis to a $4.4 billion run rate. A larger number will indicate more rapid growth of this key revenue source.
And finally, how the company intends to give away so much free Office and Windows will not impair future revenues.

It’s a new Microsoft, but the same old investors. It all kicks off at 1 p.m. PT. Strap in.