Microsoft MSFT is slated to report third-quarter 2018 results on Apr 26.

We believe Office 365 product suite along with LinkedIn is a key catalyst in the to-be-reported quarter.

Office 365 is a subscription plan to access Office applications and other productivity services utilized in cloud services. The rapid adoption of this product suit is likely to improve Microsoft’s competitive position against Alphabet GOOGL.

LinkedIn is also growing much faster than previously anticipated. As LinkedIn becomes more integrated into the Microsoft, it is anticipated to push overall top-line growth above 10% (when combined with Azure/O365).

Productivity and Business Processes revenues are expected between $8.6 billion and $8.8 billion. Office 365 commercial and consumer growth will continue in the upcoming quarter, with growth rates consistent with the second quarter. LinkedIn revenues are projected to be $1.2 billion, growing above 20%.
 

Microsoft Corporation Revenue (TTM)

 

Microsoft Corporation Revenue (TTM) | Microsoft Corporation Quote

 

The Zacks Consensus Estimate for revenues for the Productivity and Business Processes segment is currently pegged at $8.76 billion, higher than $7.96 reported in the year-ago quarter.

Click here to know how the company’s overall Q3 performance is likely to be.

Higher IT Spending, Stable PC Market Good For Microsoft

IT spending after a prolonged period of sluggishness is expected to improve in 2018. Per thelatest report from Gartner, global spending will reach $3.74 trillion in 2018, a significant increase from the $3.52 billion recorded last year.

As majority of growth is likely to come from higher spending on Enterprise Software, which is Microsoft’s forte, the trend bodes well the company. The launch of a plethora of products — Microsoft Teams in Office 365 for Education, Microsoft 365, Microsoft Relationship Sales solution and ISV Cloud Embed — is anticipated to drive installed base.

Also stable PC trends, as noted by market research firm IDC, is likely to bolster Windows 10 sales. Moreover, the company continues to add features to Windows 10 that makes it more attractive for consumers as well as enterprises. The launch of Surface LTE and the new generation of Windows 10 PCs from its OEM partners also augur well for the company.

Zacks Rank & Stocks to Consider

Currently, Microsoft carries a Zacks Rank #3 (Hold).

Ptc PTC and The Ultimate Software Group ULTI are stocks worth considering in the same sector. Both sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long term earnings growth rate for Ptc and The Ultimate Software is currently pegged at 38.2% and 22.1%, respectively.

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