Wall Street expects Microsoft to report solid earnings and continued cloud growth when it reports quarterly results after the close of trading Thursday.
Analysts expect the world's biggest software company to post earnings of 79 cents per share on revenue of $25.28 billion for the December quarter, according to Thomson Reuters.
Investors are particularly focused on how fast Microsoft is growing its higher margin cloud offerings — including cloud computing platform Azure and its web-based suite of productivity programs Office 365 — while controlling costs.
"It all boils down to is the Azure business growing and growing profitably," said Stifel analyst Brad Reback. "If Azure is the growth engine we think it is and can pick up market share from AWS, then the company is well positioned for the next couple of decades." (Reback has a Buy rating on the stock and a $66 price target.)
Microsoft began reporting commercial cloud gross margins for the first time last quarter — to add more transparency to its business — and this metric will continue to be important to investors, he said. Last quarter, Microsoft reported a commercial cloud gross margin 49 percent, up from 42 percent in the prior quarter.