What to know about the new way Microsoft will report cloud numbers Wednesday
Microsoft will release quarterly results after Wednesday’s closing bell, and with it comes a new reporting structure the company hopes will provide more visibility into its big cloud computing business. Announced in August , and reported this way for the first time this week, Microsoft decided to change which revenue streams fall under its three main reporting segments. The shift, which most impacts the company’s Azure cloud unit, comes as Wall Street watches each quarter for signs that all the company’s artificial intelligence investments are paying off. The two other major clouds — Amazon Web Services (AWS) and Alphabet ‘s Google — face a similar level of scrutiny in this new age of AI. In Microsoft’s upcoming report, search and news advertising revenue will move from the More Personal Computing (PCP) segment into the Intelligent Cloud (IC) segment. Remember, IC houses Azure and other cloud services. The move gives investors more clarity into actual usage of its AI-adjacent offerings because search and ads are based on engagement, rather than stable income streams like subscriptions that are housed within PCP. These subscriptions include those from Microsoft’s productivity software. Another change includes Microsoft removing revenue from Power Business Intelligence data analytics and the Enterprise Mobility and Security group of products from the IC segment. With those two moving out, the new Azure figure will “more closely align to consumption,” Microsoft said in an investor presentation this summer. Consumption reflects commercial clients actively using services within Azure’s computing and storage services, rather than a more opaque measurement of its performance. In turn, shareholders will get a better sense of what Azure customers use and need throughout the quarter. MSFT YTD mountain Microsoft (MSFT) year-to-date performance Some Wall Street analysts are upbeat on the new reporting structure. Piper Sandler’s Brent Bracelin argued that Microsoft’s decision will “really better reflect how they run and operate their business.” He also touted Microsoft’s AI prospects ahead of quarterly earnings — citing the company’s first-mover advantage in integrating AI. The Club has long argued this case as well, given Microsoft’s massive $13 billion investment in OpenAI, whose viral launch of ChatGPT in late 2022 showed the world beyond tech the capabilities of generative AI. “It’s a great franchise, very profitable business, [and it’s] well positioned to capitalize on the early stages of that generational shift to AI,” Bracelin, co-head of technology research at Piper, added. “There are very few $200 billion-plus businesses that are still sustaining double-digit growth with 40%-plus operating margins.” Investors may, however, be initially sensitive to the reporting changes when Microsoft reports this week, according to Bracelin. “One of the byproducts of doing this could mean creating an optical headwind,” he told CNBC. In other words, Wall Street may be underwhelmed by Azure’s performance because two former components of its revenue growth, Power BI and Enterprise Mobility and Security, will be removed. That could make the cloud computing business look weaker and smaller than fellow portfolio name Amazon. To be sure, there are dissenting voices about Microsoft ahead of earnings too. Guggenheim analysts recently argued that demand for the company’s Microsoft 365 Copilot — the AI assistant used within its productivity software — has been “lackluster.” Morgan Stanley said there’s been a “wall of worry” about Microsoft’s upcoming results, citing “messiness post a financial re-segmentation.” The analysts also pointed to “ramping capital expenditures, margin compression, lack of evidence on AI returns.” To Wall Street skepticism, Jim Cramer recently said, “We know Microsoft is a company that’s rapidly evolving, and I’m not concerned at all about that situation.” Regardless of what headline figures come out when Microsoft’s reports late Wednesday, Jim advised members not to make any sudden moves because management doesn’t provide forward guidance on the press release. The outlook comes at the end of Microsoft CFO Amy Hood’s prepared remarks on the post-earnings conference call. While management has given a detailed breakdown of all these changes, it can often be a noisy release the first time a company updates its reporting structure. Therefore, Microsoft’s results may not be a perfect apples-to-apples comparison versus estimates. For that reason, the conference call and questions from analysts are more important than ever. In addition, Microsoft has a history of volatility around earnings. Shares fell more than 7% in extended trading after July’s quarter quarterly release on perceived weakness in Azure revenue growth. The megacap, however, recouped most of those losses, closing only 1% lower in the following session. Among our Big Tech stocks, Microsoft has the rest — gaining more than 13% year to date versus the S & P 500 ‘s 22% advance. In a cloud comparison, Amazon has been the best — up roughly 24% in 2024. Alphabet has gained more than 19%. The first stock move after earnings has been the “wrong move almost half the time since this earnings season began,” Jim said . “Wait to process the numbers and listen to the conference calls before you pull the trigger.” And, make sure to do your pre-earnings homework , which provided a checklist for members in a recent commentary. (Jim Cramer’s Charitable Trust is long MSFT, GOOGL, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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Microsoft CEO Satya Nadella speaks at a company event on artificial intelligence technologies in Jakarta, Indonesia, on April 30, 2024.
Dimas Ardian | Bloomberg | Getty Images
Microsoft will release quarterly results after Wednesday’s closing bell, and with it comes a new reporting structure the company hopes will provide more visibility into its big cloud computing business.