Confusing Earnings Report from Microsoft

After the closing bell, Microsoft ($MSFT) released a rather confusing earnings report for their fiscal Q4. The software giant earned 55 cents per share which was five cents below consensus. The stock dropped sharply in the after-hours market. Then we got a closer look at the fine print, and adjusting for a three-cent charge, the bottom line was 58 cents per share. So bad, but not that bad.

Digging further we learned that MSFT’s quarterly revenue rose a healthy 18% to $23.4 billion. Not bad at all. For the entire fiscal year, revenue rose 12% to $86.8 billion. The shares eventually recovered in the after-hours market, and were even up a bit. I think the company is still in the glow of the new CEO and the announced job cuts.

The big problem is Nokia’s handset business which is a money loser. The division could turn into a winner in the long-term, but the outlook is rather iffy at the moment. This is what the WSJ had to say:

Mr. Nadella has touted his vision for Microsoft as a “mobile-first, cloud-first” company. So far, the company has had much more success on second part of that mission statement.

Even with the Nokia purchase, Microsoft sells fewer than 5% of all new smartphones purchased world-wide. The company said Thursday that it sold about 5.8 million Nokia smartphones since it acquired Nokia’s handset business in April. By comparison, rival Apple Inc. sold 35.2 million iPhones in the three months ended June 28.

The cloud-related businesses are faring much better. Microsoft said Office 365 sales more than doubled in the quarter. Total cloud revenue, which includes its Azure computing service, is on pace to generate $4.4 billion in annual revenue.

Microsoft also is posting heady growth in older products like its database software, called SQL Server, and the Windows operating software for computer servers. Microsoft’s revenue from server-software licenses rose 14% in the fourth quarter.

The company also highlighted strong sales of the software to small-and-medium-sized businesses. Those smaller companies aren’t historically Microsoft’s best customers.

Mr. Nadella, on a conference call with analysts, sketched out how he expected to invest money in the “core” areas like the Windows operating system and its software to help businesses and consumers live and work more efficiently.

Posted by on July 22nd, 2014 at 7:53 pm


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