27 January 2021

Microsoft Set to Hit Fresh High on Robust Q4 Print

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News shaping
the markets today

     

What’s happening: Microsoft Corp’s shares moved higher in extended trading on Tuesday after the software giant reported stronger-than-expected results for its fourth quarter.

What happened: The work-from-home shift amid the pandemic resulted in various companies switching to cloud-based processes.

Although Microsoft’s Azure grew by a whopping 50% last quarter, the cloud-computing division continues to face stiff competition from Amazon’s AWS.

How were the results: The Redmond, Washington-based software maker generated double-digit growth in revenues for the 14th consecutive quarter, with both top- and bottom-line metrics exceeding market views.

  • Quarterly revenues grew by 17% year-over-year to $43.1 billion, handsomely beating the Street’s estimate of $40.2 billion.
  • Profits came in at $2.03 per share, up 34% from the same quarter a year ago, ahead of the consensus estimate of $1.64 a share.

Why it matters: Microsoft delivered a strong quarter, with sales in each of the company’s three divisions surpassing market expectations. Azure’s revenue growth in the latest quarter topped the 43% growth projected by analysts, also exceeding the previous quarter’s 48% growth.

The company recorded a surge in personal computer sales, providing a boost to its flagship Windows-based operating system unit. Microsoft’s quarterly gaming revenues crossed the $5 billion mark for the first time.

The recent earnings report also provided insights into the sales of Xbox new generation gaming consoles - Series X and Series S. The new-gen consoles hit stores in November last year and have were mostly sold out since then. Xbox hardware sales spiked 86% in the fourth quarter, with content and services revenues growing 40%.

“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry. Building their own digital capability is the new currency driving every organization’s resilience and growth,” CEO Satya Nadella said.

The company also returned $10 billion to shareholders during the quarter, including stock repurchases worth $6.5 billion.

During its conference call with investors, Microsoft’s CFO Amy Hood guided to productivity sales in the range of $13.35 billion and $13.6 billion for the March quarter, while projecting intelligent cloud revenues between $14.7 billion and $14.95 billion and personal computing revenues between $12.3 billion and $12.7 billion.

How shares responded: Microsoft’s shares jumped 3.7% to $240.92 in extended trading on Tuesday following the strong earnings report. The stock climbed to a 52-week high of $234.18 in Tuesday’s regular session and are all set to hit another record high when the market opens today. The company’s shares have risen by 5.7% over the last three months but has underperformed the 12% surge in the S&P 500 index.

What to watch: Markets will keep an eye on the company’s cloud business, which is the major revenue driver. Investors are hoping for these revenues to maintain an upward trajectory, amid rising covid-19 cases and renewed restrictions. Markets will also stay in touch with Microsoft’s ability to increase the supply of Xbox consoles to meet the demand and boost its gaming business.

The Markets Today

     

US stocks will be in focus today ahead of the interest rate decision from the Federal Reserve and another batch of major corporate earnings.

Context: Wall Street closed slightly lower on Tuesday as markets remained cautious ahead of earnings reports from blue-chips and major tech companies.

Details: Some industry behemoths started the earnings season on a strong note on Tuesday. Johnson & Johnson exceeding earnings expectations, while 3M reported strong quarterly results.

More than 70% of S&P 500 companies that have reported results so far have surpassed the consensus estimates on both sales and profits.

Markets grew cautious as the Biden administration indicated on Tuesday that the eligibility criteria for the next direct payment checks to Americans may be tweaked. Joe Biden’s massive covid-19 relief package includes a $1,400 stimulus checks, but the plan has been criticised by some lawmakers due to its high price tag.

Covid-19 cases have crossed the 100 million mark globally, with various strains of the virus adding to the spread of infections.

Wild swings continued in heavily shorted shares, including AMC Entertainment and GameStop, which surged around 12% and 93%, respectively.

The S&P 500 slipped 0.2% to settle at 3,849.62 on Tuesday, after climbing to a fresh intraday all-time high earlier in the session.

The Dow Jones index settled lower by 22.96 points at 30,937.04, after adding more than 150 points at one point during the session. Meanwhile, the Nasdaq 100 edged higher by 0.05% to 13,490.19.

What to watch: Although the Fed is widely expected to keep interest rates unchanged, investors look forward to minutes from the meeting, with this being the first announcement under the Biden administration. Data on durable goods orders is also scheduled to be released today. New orders for manufactured durable goods are projected to grow 0.9% in December.

Investors will also focus on earnings from major companies, including, Apple, Boeing, Facebook, Tesla and AT&T.

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, German DAX 30 and French 40 up by 0.23%, 1.66% and 0.93%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s GfK consumer climate indicator, South Africa’s composite leading business cycle indicator, France’s consumer confidence, initial jobless claims and unemployed persons, Brazil’s current account and foreign direct investment, Argentina’s retail sales as well as the US MBA mortgage applications and EIA’s crude oil stocks.

 

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