What’s driving EPS growth?
Microsoft (MSFT) has maintained stable bottom-line growth in the last five quarters, triggered by strong growth in its cloud services business. The company’s EPS (earnings per share) were supported by growing demand for Office 365, growth in its Gaming business buoyed by the increase in Xbox Live users, and the launch of Xbox One X.
The successful integration of LinkedIn and the implementation of the Tax Cuts and Jobs Act may also act as a growth catalyst for the company.
The chart above shows the growth of Microsoft’s EPS in the last five quarters. During this period, Microsoft’s bottom line has increased at a CAGR (compound annual growth rate) of 3.4%.
Microsoft’s EPS in fiscal 2Q18 stood at $0.96 compared with $0.84 in fiscal 2Q17. The company easily outpaced the Wall Street Journal earnings estimate of $0.87 per share. The company also surpassed its EPS estimates in the last five quarters.
Outlook and headwinds for EPS growth
Despite strong growth in revenues across all business units, the rising operating expenses may act as headwinds for Microsoft going forward. The company’s increasing operating expenses are driven by higher research and development expenses as well as selling and marketing costs.
Software peers Accenture (ACN) and International Business Machines (IBM) recently reported their fiscal 1Q18 and fiscal 4Q17 financial results. The EPS for Accenture and IBM came in at $1.78 and $5.18, respectively, easily outpacing the estimates by 7.2% and 0.2%.