Microsoft’s LinkedIn deal looms over quarter – USA TODAY
SAN FRANCISCO â Microsoft’s report on the quarter late Tuesday will also be a report cardÂ onÂ CEO Satya NadellaâsÂ efforts to retool the storied company for a new technological era.
The Redmond, Wash-based company, which reveals its fiscal fourth-quarter results after the bell, is expected to report adjusted earnings per share of 58 cents on $22.1 billion in revenue, according to analyst estimates provided by S&P Global Market Intelligence.
Under Nadella, who took over from Steve Ballmer in February 2014, Microsoft has pivoted away from its software licensing model and towards a cloud- and mobile-first strategy that has sent the stock up 30% in two years to $53.
But while most analysts remain upbeat about Microsoftâs prospects, doubt about the companyâs ability to reestablish itself as a dominant force has crept in on the heels of third-quarter results that included a 6% decline in revenue to $20.5 billion.
âThe last quarter was viewed as disappointing and indicative of the issues Microsoft is facing,â says Scott Kessler with S&P Global Market Intelligence, pointing to the shrinking PC market, fierce competition in the enterprise cloud space and its poor showing in the smartphone market.
To that list of woes, Kessler now adds inevitable foreign currency impact on revenue after Britain voted to leave the European Union last month, a move that sent markets and currencies reeling.
âMicrosoft still has a lot of work to do,â he says.
On the plus side of the ledger is continued adoption of Windows 10, a free upgrade that quickly found its way onto 350 million devices.
Microsoftâs AzureÂ cloud is second only to dominant Amazon Web Services and accounts for $8 billion in annualized revenue. Nadella has said he is aiming for $20 billion in cloud revenue by 2020.
And monthly active users of Xbox Live continue the gaming service’sÂ double-digit annual growth.
Nadella continues to grow the company through acquisitions, its most dramatic being the $26 billion plan last month to purchase professional networking site LinkedIn.Â The proposed deal is seen as a way to further lure enterprise customers and compete in the lucrative software-as-a-service business dominated by Salesforce, Oracle and SAP.
âI like this deal, but now the key is just not to wreck (LinkedIn),â says Colin Gillis, analyst with BCG Partners. âIf you see (LinkedIn CEO) Jeff (Weiner) heading for the door, you know itâs over. But if they can effectively integrate LinkedIn into Office, theyâll have something.â
Analysts suggest that the true measure of the LinkedIn deal will be in ânoticeable engagement and significant revenue,â says Josh Olson, an analyst withÂ Edward Jones. Due to his current track record, Nadella âstill gets the benefit of the doubt.â
Nadella continues to build out what amounts to a suite of products that, in theory, consumer and enterprise customers could spend a good deal of their day engaging with. There areÂ cloud-based work platforms such as Office and OneNote, collaboration tools such as Yammer and Skype, and Xbox for leisure time.
âMicrosoft keeps talking about wanting to hit 1 billion device downloads of Windows 10, but that isnât very interesting,â says Frank Gillett of Forrester Research. âWhat really matters in this new world are both the number of account holders (for your services) and the degree of engagement.â
Going into FY 2017, Nadella will be battling for that engagement against the likes of Google, Apple and myriad other tech giants. And while the companyâs report card is issued quarterly, the true results may still be years away.
âMicrosoft is just that kind of company,â says Kessler. âWhile itâs tough to be optimistic in the near term, they offer conservative guidance, they aim to execute against their goals, and they plan things in years, not quarters.â
Follow USA TODAYÂ reporter Marco della Cava on Twitter:Â @marcodellacava