Microsoft | $MSFT Stock | Earnings Brief

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Microsoft

 

 

Microsoft reported their Q1 earnings of 76 cents a share on revenues of $22.33 Billion, surpassing expectations on Wallstreet. Shares of MSFT surged higher by over 5% in after hours trading hitting levels that have not been seen since 1999.

 

MSFT Analyst Opinion

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Analysts’ at well the well-known financial services firm, UBS, had the following comments on October 19 headed into earnings.

When will beat and lower turn to beat and raise?

MSFT has lowered out-qtr guidance in 7 of the past 8 qtrs, leaving many investors wondering where this pattern will stop. While bears continue to have questions around lack of EPS growth ($2.76 in FY16 vs. $2.70 in FY11), we ask whether earnings is the most relevant metric to look at during the transition and caution that during ADBE’s transition investors were misled by earnings, while the stock provided material outperformance (up ~4x since Nov. 2011). Ultimately, we view FCF as a more useful metric to value the business on and note MSFT still trades at a discount to mega cap tech peers (15x EV/FCF on CY17e vs. INTC at 16.5x, IBM at 15x but w/ FCF declining), while also growing FCF +8% in FY16. We think they can continue to grow FCF in the mid-single digits and remind investors that while the shift to cloud provides less upfront revenue and lower margin in the short-term, it ultimately leads to greater visibility and more consistent results, relative to mega cap tech peers, over time.

Pros of the FQ1 setup

1) Conservative setup est. FQ1 q/q rev decline of -4.5% is greater than in previous years (-2.3% in 1Q16); guidance for ~31% op margin (vs. 32.7% in 1Q16), also leaves room for upside; 2) consistent results – MSFT has met or exceeded top and bottom line expectations in all but 1 of the past 8 qtrs (3Q16 EPS miss the lone exception); 3) enterprises are moving to Azure as evidenced by SAP and ADBE (among others) recently electing to place internal workloads on.

…and the cons 1) Seasonally soft FQ1, and stock is up 11% since the FQ3 miss in April; 2) hardest comp of the year in the intelligent cloud segment was up 7.5%/14% in CC in 1Q16; 3) Growth in PC segment continues to be challenged, est. -5% y/y in FQ1 (and down -6% in FY16).

 

About Microsoft Corporation

Microsoft Corporation, incorporated on September 22, 1993, is a technology company. The Company develops, licenses and supports a range of software products, services and devices. Its segments are Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. The Company also designs, manufactures and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, which integrate with its cloud-based offerings. The Company offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and the Company provides solution support and consulting services. The Company also delivers relevant online advertising to a global audience. As of June 30, 2016, the Company operated in 190 countries throughout the world. – Reuters

 

 

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