Microsoft Reports Earnings After The Bell Amid A Global Reorganization

Tech giant Microsoft Corporation MSFT closes out its year and reports fiscal Q4 earnings after market close on Thursday, July 20. In recent news, the company confirmed reports that it is restructuring its global sales team, which includes an undisclosed number of layoffs.

The reorganization is focused on aligning the company’s commercial-sales team with its shifting business priorities. In the past, the company has provided additional details on its earnings calls when it has announced major changes, and many analysts are hoping to learn more about those plans on today’s call. MarketWatch reports that the sales team will be organized by the size of businesses that they will target.

The reorganization comes as Microsoft, and other legacy tech companies, shift from old product lines to cloud-based, subscription products. One of the big focuses for many analysts in recent quarters has been Azure, the company’s cloud-computing business that competes with offerings from Amazon.com, Inc. AMZN Web Services, Alphabet Inc GOOG GOOGL Google Cloud, among others. The company doesn’t break out total revenues for Azure, but it did report that revenue from that segment grew 93% in the last quarter. Microsoft also recently launched a new product called Azure Stack, which provides customers with a combination of private servers and cloud services.

Part of the drive behind Microsoft’s focus on new products and services is a softening PC market. Historically, operating systems and productivity software have been a large source of revenue for the company. Looking at the broader PC market, research firm Gartner recently reported a 4.3% decline year-over-year in PC shipments in the first quarter, the 11^th consecutive quarter of year-over-year declines, and also the lowest quarterly volume since 2007.

Another area analysts might be looking for more detail on today’s call is the company’s cash balance, which is largely held overseas, and how it might deploy that cash in the future. There have been proposals in Washington for a one-time repatriation tax break for company’s holding cash overseas, but it remains to be seen how any changes to tax codes might work out. Over the past several years, Microsoft has used a large portion of its cash for share buybacks and dividend increases.

FIGURE 1: NEW HIGHS. Microsoft stock just hit a new all-time high of $74.04 in trading yesterday. It’s up just over 18% year-to-date, and outperforming the Nasdaq’s (COMP) 17.61% return by a small margin. Chart source: thinkorswim^® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Microsoft Earnings and Trading Activity

For fiscal Q4, Microsoft is expected to report earnings of $0.71 per share, up slightly from $0.69 in the same period a year ago, on revenue of $24.19 billion according to third-party consensus analyst estimates. The company has beat earnings expectations in the last four quarters.

Like a lot of stocks in the tech sector, shares of Microsoft had a pretty big run since early July and just hit a new all-time high of $74.04 in trading on July 19. Options traders have priced in a 3.5% potential share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.

In short-term options trading leading up to the earnings release at the July 21 monthly expiration, both calls and puts have been active at the 74 and 75 strike prices. The implied volatility sits at the 75th percentile.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Another earnings report to watch this week is General Electric Comnpany GE before market open on Friday. Like Microsoft, due to the size and reach of the company’s business, their results can provide a look at the  global economy. And if you have time, make sure to check out today’s market update to see what else is happening.