Microsoft Posts Strong Earnings

Zacks


The world’s largest software company Microsoft (MSFT) reported earnings just after the bell, EPS $0.72, surpassing Zacks consensus estimate of $0.67.  Revenues came in just below Zacks estimate of $20.5 billion, at $20.49 billion.

Analysts were concerned about PC sales/demand; Q1 was the fourth consecutive quarter with Y/Y decline in PC sales, the single worse quarter in PC sales history since 1994.  In addition to PC sales, analysts were also concerned with the tepid reception of Windows 8, and weakness in emerging markets.  These issues caused a significant negative agreement amongst covering analysts, but MSFT was able to outperform their expectations.  

The earnings beat caused the stock to jump 1.77% in afterhours trading.  While MSFT beat the earnings consensus estimates, expense management was the major driver in the strong earnings numbers.  Furthermore, revenue growth remains a major concern for future quarters, as well as the disappointing Windows 8 OS.  The combination of these two factors, have analysts worried that there is no clear option as a driver of future growth over the near term.

While Microsoft has attempted to find more avenues for revenues, for example the patent licensing deal with Hon Hai (producer of 40% of the world’s consumer electronics), they have not produced a strong game changing product for an elongated period of time.  More significantly, MSFT emergence in the mobile device remains a weakness for the company.

On a positive note, Microsoft continues to reduce costs, and sees decent sales of their Windows 7 and 8 operating systems.    

Tomorrow, Zacks will post a more detailed report covering, mobile devices, cloud computing, tablets, the server and tool business, and Windows 8.

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