Microsoft Corporation (NASDAQ: MSFT) is out with earnings and there is some news that will please bulls and bears alike. Microsoft reported headline earnings of $0.61 EPS, but the headline data is misleading. Revenue grew about 13% to $16.43 billion. Thomson Reuters had consensus estimates of $0.56 EPS and $16.19 billion in revenue. Operating income was $5.71 billion, net income was $5.23 billion, and diluted earnings was $0.61 EPS (increases of 10%, 31%, and 36%, respectively).
Where the confusion comes into play is that the EPS figure includes a $0.05 tax benefit, which is said to be primarily related to an IRS agreement to settle a portion of their audit of tax years 2004 to 2006. In short, Microsoft barely beat on revenues and only met expectations on earnings.
Microsoft decided to not offer guidance in earnings and revenues, so you will have to consider this unfinished business until after the earnings conference call. The company reaffirmed its guidance of $26.9 billion to $27.3 billion for the full year’s operating expenses. For 2012 it said, “”2012 operating expense guidance of 3% to 5% growth from the mid-point of fiscal year 2011 guidance, or $28.0 billion to $28.6 billion.”
The biggest figure that many investors will care about is the cash position…. Microsoft ended with a whopping $50.15 billion in cash, cash equivalents, and short-term assets. The translation here is that nearly one-fourth of its market capitalization is in cash.
Microsoft Business Division revenue grew 21% with Office 2010 being the fastest selling version of Office in company history. Server & Tools revenue grew 11%. Windows 7 was also said to be the fastest selling O/S in history with 350 million licenses sold, but the company said that revenue for the segment was down 4% in the quarter with slower PC trends.
The company’s Online Services division saw revenues rise by 14% from increases in search revenue, and the company claims that Bing’s current US search market share rose to 13.9% for the quarter. Entertainment & Devices Division grew 60% due to Kinect. Online Services Division revenue grew 14%, also due to gains in search.
By the way, we would like to make a public service announcement straight to Steve Ballmer… “You do not need to stop issuing press releases for your earnings. Simply putting these earnings on your investment relations website doesn’t quite cut it even if Google and Netflix think that is OK. You cannot believe legitimately that having one degree of less transparency will help your investors.”
Microsoft shares closed up 1.25% at $26.71 and the shares are trading down about 1.7% at $26.71 in the initial after-hours reaction. Again, consider this one as unfinished business. There is evidence of great value being offered up here, and there is evidence that Microsoft is also still a value trap per the valuation metrics we used in our preview today.
JON C. OGG
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