Microsoft is set to report earnings Wednesday and analysts have little reason to be worried. The tech giant has beaten both on earnings and revenue estimates for eight straight quarters and they believe the trend will continue.
Some analysts are pegging Microsoft’s (MSFT) recent success not to its flagship PC business but its newer cloud systems business.
“I can remember back in the 1990s, every time Microsoft came out with a new version of their Windows system, it showed up on Time magazine's front cover. It's not like that anymore,” Dan Morgan, portfolio senior manager at Synovus, told Yahoo Finance. “Really, it's more of an afterthought in terms of their – their really gross business, which is going to be the cloud space.”
As revenue from the cloud space accelerates and other legacy companies double down on cloud technology – like IBM’s billion-dollar acquisition of Red Hat in July – analysts are looking for which companies are pulling ahead. Microsoft’s commercial cloud business raked in over $11 billion in revenue in its last financial quarter, up 19% from the previous quarter. Azure, Microsoft’s biggest component of its cloud business, grew 64% in the last fiscal year. Azure competes with market leader Amazon Web Services (AWS) to provide computing power to businesses.
“Microsoft is a cloud story, right? It's a company that's migrating away from their desktop [business] and their core enterprise operating system, to becoming really a major player in the cloud space,” Morgan said.
Morgan said Wall Street will use the performance of the company’s cloud business to determine the success of this financial quarter.
Experts are resting easy with Microsoft’s track record of producing products that consume given spaces. Even beyond Microsoft’s position to move ahead in the cloud space, analysts are even eyeing the tech giant’s moves to compete with recently public Slack. Microsoft’s new product, “Teams,” is a team management software that some say is directly hurting Slack’s marketshare.
“Microsoft has such deep pockets. They have so much cash, so much R&D, you wonder if they're going to kind of blow away Slack in that space just because of their sheer size,” Morgan said. “If you look at the history of the company, they'll often get involved with something and be a minor player, and then all of a sudden they take over that whole space.”
Microsoft reports earnings Wednesday after the closing bell.
Ashley is a Production Assistant for Yahoo Finance. Follow her on Twitter @actuallynelson.