Microsoft shifts to two-segment reporting ahead of Wednesday earnings release

Microsoft faces a structural break in its financial reporting as it prepares to release quarterly results after the market closes on Wednesday. The company will present its performance under just two operating segments, a shift not seen since 1998. This change replaces the three-segment model covering Azure, Office, and Windows that the firm used for the previous eleven years.

LSEG data shows analysts expect adjusted earnings of $4.73 per share on revenue of $90.69 billion for the fiscal quarter ending Sept. 30. A key element of the new disclosure is the first dollar figure for Azure cloud revenue. StreetAccount analysts project that figure at $32.32 billion, which would represent growth of more than 44%.

The financial structure change occurs while Microsoft balances its artificial intelligence expansion against capital efficiency. Executives will discuss the numbers on a conference call starting at 5:30 p.m. ET. During the quarter, the company announced a reduction of 4,800 jobs. It followed that move on Monday with an offer of buyouts to up to 60,000 employees. StreetAccount forecasts capital expenditures and finance leases at $50.67 billion for the period.

Microsoft has continued to generate free cash flow, a distinction it shares with few peers in the cloud sector. Alphabet and Amazon, which report on Wednesday and Thursday respectively, posted negative free cash flow in the June quarter. Meta also reported negative free cash flow for the third quarter last week. The company created an AI implementation unit and launched a Copilot AI super app with coding capabilities during the same period.

Despite these moves, Microsoft stock has trailed the wider market this year. Shares were up nearly 10% year to date as of Tuesday's close. The S&P 500 index gained about 13% over the same timeframe.