Microsoft Beats, But Windows Had A Bad Quarter And The Stock Is Dropping
REUTERS/Kevin Coombs Microsoft CEO Satya Nadella. Microsoft earnings are out.
Revenue: $26.5 billion versus $26.33 billion expected by analysts. That's up 8% from last year.
GAAP Earnings Per Share: $0.71 versus $0.71 EPS expected, which is down 9% from a year ago.
The stock dropped almost 4% after-hours on a weak performance by Windows and lower-than-expected sales of software to companies.
It was a hard quarter for Windows, as OEM revenue — the amount of money Microsoft got from selling Windows on new PCs, as opposed to selling Windows to corporations — was down 13% from last year.
Microsoft told us that last year's revenue was boosted by the impending end of Windows XP support for enterprises; that boost doesn't exist this year, so it was hard to keep growth up. On its earnings call, Microsoft also said that sales in China and Japan did not meet expectations.
Also, Microsoft's commercial-licensing segment, which counts sales of software and services like Office, Office 365, Exchange, and SQL Server to big companies, posted only $10.7 billion in revenue for the quarter, down 2% from last year and shy of analysts' expectations of around $10.9 billion. It's Microsoft's largest segment by far, making up more than a third of its revenue, so any lag there is seen as bad news for the company overall.
In the release, Microsoft also says its earnings per share include a $0.02 restructuring charge related to Nokia, so Microsoft would argue it beat expectations on the bottom line as well as the top line.
Some other data points of interest: Microsoft generated $2.3 billion in revenue off 10 million phone sales, which is a $230 average selling price. Apple's average selling price for an iPhone is north of $600, for context.
Microsoft says the Surface generated $1.1 billion in revenue, and was profitable with a "respectable" gross margin, versus "just squeak[ing] over the line" into profitability last quarter. Microsoft confirmed that it's only selling the Surface Pro 3, and is no longer manufacturing the cheaper Surface 2.
Microsoft also told us that Office 365 is going like gangbusters, and was the main contributor to the company's cloud business, which grew 114% from a year ago. Microsoft says the cloud business now has an annualized run rate of $5.5 billion — up from $4.4 billion in June — and that the home version of Office 365 now has 9.2 million subscribers, up from 7 million a quarter ago.
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