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Will Microsoft Beat Q4 Earnings Estimates?

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Dec. 4 2020, Updated 10:52 a.m. ET

Fiscal Q4 2018 EPS estimate

Microsoft (MSFT) is set to release its fiscal Q4 2018 financial results on July 19. Analysts expect EPS (earnings per share) for the tech giant to be $1.08, reflecting nearly 49% YoY (year-over-year) growth. Analysts have made a very high EPS estimate for the upcoming quarter as compared with the last five quarters. In the last five quarters, Microsoft’s bottom line has increased at a CAGR (compound annual growth rate) of 6.8%.

From the graph above, we can see the comparison between the actual EPS and the estimated EPS in the last four quarters. In the last four quarters, the company easily outpaced analysts’ estimate. The EPS in Q3 2018 stood at $0.95, up 30.1%.

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Key catalysts

Strong demand for Microsoft’s Azure cloud business and higher adoption of Office 365 products continue to act as a strong catalyst for the company’s bottom-line growth. The company is gradually reducing the gap between it and Amazon’s (AMZN) AWS cloud business. This year, Amazon, Microsoft, and Google (GOOGL) belong to the Gartner’s Magic Quadrant as leaders in the infrastructure-as-a-service (or IaaS) platform.

Moreover, the successful integration of LinkedIn is also contributing to EPS growth as the networking site continues to witness growth in usage time. Microsoft anticipates double-digit growth in key components of its Productivity and Business Process segment, which includes Office 365, Dynamics 365, and LinkedIn.

In addition, the company expects the effective tax rate to be around 16%, slightly below the new US corporate tax rate of 21%, thus providing support to EPS growth.

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