Financial Report Preview | Realigning Cloud Business Scope Can Microsoft Meet Market High Expectations?

According to the Zhitong Finance APP, Microsoft (MSFT.US) is scheduled to release its financial report for the first quarter of the 2025 fiscal year after the U.S. stock market closes on October 30. Analysts generally expect the company to have an earnings per share of $3.10, compared to $2.99 in the same period last year; revenue is expected to reach $64.53 billion, up from $56.52 billion in the same period last year.

Key Metrics to Watch

Microsoft updated its 2025 fiscal year investor metrics in August, including several significant departmental changes. The Microsoft 365 business products and cloud services included in the Productivity and Business Processes department will now include Enterprise Mobility and Security, which previously belonged to Azure under the Intelligent Cloud department.

The Windows business products and cloud services revenue, which originally belonged to the More Personal Computing department, will now be included in the PBP department.

Revenue Growth

Revenue growth remains a key metric for Microsoft. In the previous quarter, Microsoft's revenue grew by 3.6%, with actual revenue at $56.5 billion, nearly $2 billion higher than expected. For the upcoming financial report, investors will focus on whether Microsoft can maintain or exceed its growth trajectory, especially considering its expansion in artificial intelligence and cloud computing.

Operating Income and Profit Margin

Microsoft's operating profit margin is 44.6%, with a gross margin of 69.8%, and profitability is another key aspect of the financial report. Investors will pay attention to any changes in operating income, especially considering its strong EBITDA year-over-year growth of 26.7%, as it reflects the company's operational efficiency.

Customer Growth

The strength of Microsoft's customer base in key areas such as Azure and enterprise software will be crucial. The company's earnings per share grew by 21.9% year-over-year, directly related to its expanding customer base. The continuation of this trend will be a positive signal for long-term growth.

Future Quarter Guidance

Guidance is an important component of earnings reports, providing insights into the company's outlook. Microsoft typically provides forecasts to help investors assess the company's growth trajectory. Analyzing this guidance helps investors understand management's expectations and may significantly impact Microsoft's stock price. If the guidance exceeds market expectations, it may indicate strong future performance, while conservative forecasts may raise concerns.

Wall Street Bullish

Analysts remain bullish on the stock, unanimously recommending a buy with a target price range of $420 to $600, well above the current stock price of $418.74. This aligns with Microsoft's strong business fundamentals, including a 69.8% gross margin and an impressive 44.6% operating profit margin.

It is expected that Microsoft will continue to maintain strong financial performance. The market's general expectation for earnings per share for this fiscal year is $13.15, with a range of expectations between $12.74 and $13.86. In terms of revenue, analysts expect Microsoft's full-year revenue to reach $279.21 billion, reflecting a strong 15.7% year-over-year revenue growth momentum for Microsoft. These high expectations from analysts show optimism, but also set a high standard for the upcoming report Still at Risk

However, Piper Sandler lowered its target price from $485 to $470 before the financial report was released. Analyst Brent Bracelin believes that the new indicators released in August have not been fully reflected in expectations, including significant changes to Azure. "Based on our estimates, Azure IaaS revenue is now declining by over 20%, and the growth rate for this quarter may drop to 33-34%." "Even after adjusting for Copilot assumptions, given the triple-digit growth prospects of OpenAI, we remain bullish on Microsoft's artificial intelligence, with AI revenue expected to exceed $10 billion by 2025, with over 90% coming from Azure."

Morgan Stanley stated last month that the reporting changes made by Microsoft should provide a "clearer" view for its crucial Azure division