Tech Earnings: 3 Stocks to Watch Thursday

Markets Motley Fool

It's a big week in tech for earnings season. Three popular tech names -- Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), and Twitter (NYSE: TWTR) are reporting results for their most recent quarter on Thursday. While investors will be watching each of these companies for different reasons, they will all generate plenty of interest.

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Ahead of these companies' earnings results on Thursday, here's a quick look at each company, as well as the key metrics investors should watch when they report their latest quarterly results.

Microsoft

When Microsoft reports its results for its first fiscal quarter of 2018 on Thursday, investors will be checking in on the software giant's growth story. With a market capitalization of over $600 billion and a premium price-to-earnings ratio of 29, Microsoft needs to continually prove to investors that its business still has upside.

For its first fiscal quarter, analysts expect Microsoft's revenue to increase 5.4% year over year, continuing the company's recent return to growth.

One key catalyst for Microsoft's business today is its Office 365 commercial revenue.

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  • Key metric: Office 365 commercial revenue growth

In Microsoft's most recent quarter, revenue from the product was up 43% year over year, or 44% in constant currency. Will this strong momentum persist in Microsoft's fiscal first quarter?

Alphabet

In Alphabet's third quarter, investors will look for the company's strong results from mobile search and YouTube to continue driving robust growth in Google advertising revenue. Google advertising revenue in Q2 was up 18.4% year over year, helping Alphabet's total revenue increase 21% year over year.

But there's more to Alphabet's business than its core Google advertising segment. Investors should also check on Alphabet's "Google other" segment, which primarily consists of revenue from the Android app store, Google-branded hardware, and cloud services.

  • Key metric: Alphabet's "Google other" revenue growth

"Google other" revenue was up a nice 42% year over year in Q2, accounting for 12% of total Alphabet revenue.

Twitter

Like Microsoft and Alphabet, Twitter investors will undoubtedly pay attention to revenue growth. For Twitter, however, revenue growth has been a problem. In the company's most recent quarter, revenue fell 5% year over year.

But focusing too much on Twitter's revenue will mean investors miss the underlying issue behind this top-line decline. Twitter's user growth came to a halt in the company's second quarter.

  • Key metric: user growth

Twitter had 328 million second-quarter monthly active users were, the same amount as the prior quarter. Given that management has explicitly said its revenue trends will lag its user trends, this doesn't bode well for the company's hopeful return to revenue growth.

Investors should look for Twitter's monthly active users to resume sequential growth in Q3.

In addition to Twitter's monthly active users, Twitter investors should also check on the company's growth in daily active users. As Twitter management pointed out in its second-quarter shareholder letter, the company has been faring better when it comes to daily active user trends. Daily active users were up 12% year over year in Q2. This compares to 5% year over year growth in monthly active users.

Investors should look for daily active user growth in Q3 to be similar to the 12% year-over-year growth it reported in Q2.

Stay tuned to The Motley Fool for follow-up analysis on all of these companies' earnings reports. Twitter reports its quarterly results before market open on Thursday, while Alphabet and Microsoft report theirs after market close.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Twitter. The Motley Fool has a disclosure policy.