Microsoft Corporation Earnings: Can Nadella Bring Back Growth?

Microsoft has a lot at stake in Nadella's first quarterly report as CEO.

Apr 23, 2014 at 12:30PM

On Thursday, Microsoft (NASDAQ:MSFT) will release its quarterly report, and shareholders expect that the tech giant will once again see earnings fall as it struggles to rediscover its growth potential. Yet with new CEO Satya Nadella on board, Microsoft hopes that it will answer the call and fight back against Apple and its other rivals more effectively. So far, investors appear heartened by Microsoft's new leadership.

Microsoft has been in transition for a long time, as it tries to pivot from its dominance on the PC operating system and office-software front toward becoming a more important player in growth areas like mobile and cloud computing. Given Microsoft's size, initiatives to implement change have taken a long time to have an impact on the company, but many now believe that under Nadella's guidance, Microsoft can stand up to Apple and other rivals and make a bigger impression on the tech industry going forward. Let's take an early look at what's been happening with Microsoft over the past quarter and what we're likely to see in its report.

Msft

Stats on Microsoft

Analyst EPS Estimate

$0.63

Change From Year-Ago EPS

(12.5%)

Revenue Estimate

$20.39 billion

Change From Year-Ago Revenue

(0.5%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Microsoft earnings finally start growing again?
In recent months, analysts have had mixed views on Microsoft earnings, cutting March-quarter estimates by $0.03 per share but boosting full-year fiscal 2014 projections by $0.04 per share. The stock has jumped impressively, climbing 9% since mid-January.

Much of the gain in Microsoft stock came after the company reported its fiscal second-quarter earnings in January. Even though earnings fell 4% from year-ago levels, they beat expectations by a dime per share, despite the downward pressure on margins from products like its newly released Xbox One gaming console and new versions of its Surface tablets. A 10% jump in revenue from its commercial division was particularly good news for Microsoft investors, as the area includes cloud-computing products as well as its SQL Server database. Overall, Microsoft sales rose 11%, reflecting the ongoing popularity and need for its products generally.

Msft Nadella

Microsoft CEO Satya Nadella. Source: Wikimedia Commons.

But arguably the biggest positive change for Microsoft was bringing on Nadella as CEO. By resolving the long-open question of who would take over for former CEO Steve Ballmer, Microsoft finally indicated its willingness to move forward in a new direction. With more than 20 years of experience at Microsoft but with his own singular vision for the company, Nadella will bring new vitality to Microsoft's efforts to bolster its presence in cloud computing and the broader enterprise and commercial segment. That has the potential to be much more profitable than Microsoft's better-known consumer-facing divisions, and could make a meaningful difference as it seeks to differentiate itself from Apple and other early movers on the mobile-device front.

Nadella has already made some key moves to help Microsoft. With something as simple as making the popular Start Menu available in Windows 8, he has shown that Microsoft can admit mistakes and fix them. More importantly, making Office available for Apple's iPad made it clear that Microsoft wants to be relevant on all mobile platforms, not just its own proprietary products. The new CEO has also shaken things up internally, appointing new division leaders in three key Microsoft segments to help integrate the company under his own vision.

In the Microsoft earnings report, watch closely to see how Nadella positions Microsoft for the future. With so much growth potential behind a history of disappointing long-term investors, Microsoft could finally break out of its long funk and make shareholders happy that they were patient enough to see the tech giant turn things around once and for all.

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