Microsoft Q4 Earnings after Activision Blizzard Acquisition News

With disappointing stock performance in the tech space, Microsoft offers the best chance for a rebound with a focus on how its latest acquisition could affect its earnings guidance.

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What stats could move the stock?

Microsoft (MSFT) is expected to report earnings of $2.28 per share on revenues of $50.6B for the last quarter according to data provided by KeyBank.

One of the main points of focus for any market reaction is the operating margin. With Microsoft moving away from software sales, margins are expected to keep improving. Last quarter it reported an indicative Op Margin of 44.7%, which is impressive and cannot last forever. A significant drop in that metric could get investors a little worried.

We should remember that Microsoft's primary source of revenue is now cloud computing (as opposed to selling the Windows Operating system), which grew revenue by 50% in the last quarter. Any comments on cloud growth, market share etc could be market-movers.

The future is meta-merging

Two hours after Microsoft's earnings, the company will release slides with forecasts for next quarter's earnings.

This could be the pivotal point for the market reaction because the company might adjust its Game Pass portfolio outlook to account for the potential acquisition of leading video game company Activision Blizzard. The latter has been actively involved in VR and AR in the digital world now known as the ‘Metaverse.’ However, there could be a drop in earnings outlook to account for up-front merger costs, including the buying cost of $70 billion.

Investors also want to see a ray of hope for supply chains. As Microsoft ramps up its cloud services, it needs semiconductors. So far, the company hasn't given any indication for when it sees supplies balancing out.

Microsoft's forecast on operating expenses could also provide a potential point of concern for traders. So far, the company has kept operating expenses below the $13B mark, which has allowed substantial cash reserves of more than $130 billion to support and explore the acquisition of TikTok and Discord. But if operating expenses are forecast to rise, that could impact the underlying operating margin and weigh on the company's valuation.

Microsoft (MSFT) Share Price Outlook

On Thursday, MSFT plummeted 2.5%, equal to the NASDAQ's drop.
Back in the $305-$280 zone, the technical outlook for Microsoft is bearish unless $300 support holds firm. The next challenge would be to rise and fill the gap at $328, opening up the possibility of $350. Should $350 give way, there is not much support until much lower between $200-230

Source: Spreadex Trading Platform

Takeaways

Traders should focus on a potential quarterly revenue beat and a slight improvement in Op Margin, but also keep an eye on Microsoft's financial guidance, semiconductor supplies, and operating expenses.

As we noted in the introduction, Microsoft earnings don’t just have ramifications for its own stock but for the entire stock market, which has become increasingly reliant on the stock performance of 5 mega cap tech stocks (including Microsoft) to sustain the bull market.