Microsoft Q1 FY2022 Earnings Preview: Azure Growth, Stock Buybacks & Dividend Hike in 2021
Microsoft (MSFT) is set to release its Q1 FY2022 earnings on October 26, 2021. Investors are keen to see if Azure's revenue growth can rebound amid a slight slowdown in overall revenue expansion.
Key Focus: Year-Over-Year Azure Revenue Growth
Highlights to Watch
- Analysts predict adjusted EPS of $2.08, up from $1.82 in Q1 FY2021.
- Azure cloud services expected to show strong year-over-year revenue growth.
- Overall revenue growth anticipated to continue but at a decelerated pace.
Microsoft Corp. (MSFT) is coming off one of its strongest fiscal years in recent memory, posting the fastest earnings and revenue growth rates seen in the past five years. This robust performance has allowed Microsoft to increase shareholder returns significantly. In mid-September 2021, the company announced an 11% increase in its quarterly dividend alongside launching a new $60 billion stock repurchase program.
As Microsoft prepares to report Q1 FY2022 earnings after the market closes on October 26, 2021, investors will closely monitor whether the tech giant can sustain its impressive financial momentum. While adjusted earnings per share (EPS) are expected to rise, growth is projected to slow compared to the previous four quarters. Similarly, revenue growth is forecasted to continue but at a tempered rate.
A central point of investor interest will be the year-over-year revenue growth of Azure, Microsoft's flagship cloud computing platform. Azure provides an extensive suite of services to developers, IT professionals, and enterprises worldwide. Analysts anticipate Azure revenue to grow at a slightly faster rate than in the prior quarter, reinforcing its role as a key growth driver.
However, Microsoft faces increasing cybersecurity challenges. Recent months have seen a surge in cyberattacks linked to Russian hacking groups targeting technology companies to steal sensitive data. Notably, Microsoft and cybersecurity firm FireEye were victims of significant breaches in prior incidents.
Over the past year, Microsoft’s stock has outperformed the broader market. The shares lagged behind in late 2020 but surged ahead from mid-June 2021 onward, widening the performance gap. Microsoft’s total return over the last 12 months stands at 45.2%, surpassing the S&P 500’s 31.6% total return.
Microsoft’s Recent Earnings Performance
Microsoft’s Q4 FY2021 results exceeded analyst expectations with adjusted EPS rising 48.3% year-over-year and revenue growing 21.4%. This marked the fastest growth rates in over four and a half years, led by the Intelligent Cloud segment.
In Q3 FY2021, earnings and revenue also beat consensus estimates, with adjusted EPS increasing 39.4% and revenue up 19.1% year-over-year. The company attributed this acceleration to the ongoing digital transformation as businesses increasingly migrate operations to the cloud amid the COVID-19 pandemic.
Looking ahead to Q1 FY2022, analysts forecast a slowdown with adjusted EPS growth of 14.1% year-over-year—the slowest since Q4 FY2020—and revenue growth expected at 18.2%. For the full fiscal year 2022, adjusted EPS is projected to grow 10.0%, marking the slowest pace in at least six years, while revenue growth is anticipated to moderate to 14.1%.
Source: Visible Alpha
Why Azure Matters
Azure, part of Microsoft’s Intelligent Cloud segment along with services like SQL Server and Visual Studio, is a comprehensive cloud platform offering networking, storage, mobile and web application services, AI, IoT, and more. As of Q2 2021, Azure held approximately 22% of the global cloud market, second only to Amazon Web Services.
Azure has been a critical growth engine for Microsoft, consistently outpacing overall company revenue growth. However, its growth rate has decelerated over recent years—from 76.0% year-over-year growth in Q1 FY2019 down to 45.0% by Q4 FY2021. Analysts expect a modest acceleration to 45.4% growth in Q1 FY2022. These figures are reported in constant currency as per Microsoft’s disclosures.
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