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Dow-30 Earnings: Microsoft – Fourth Quarter Fiscal 2012
Software giant Microsoft Corp. (MSFT – Free Microsoft Stock Report) has reported revenues and earnings of $18.1 billion and $0.67 a share for its fourth fiscal quarter (ended June 30th), compared with our estimates of $18.8 billion and $0.67. Investors should note that we are excluding an impairment charge of $6.2 billion ($0.73 a share) related to goodwill as nonrecurring. For fiscal 2012, Microsoft recorded revenues of $73.7 billion and earnings of $2.72 a share, versus $69.9 billion and $2.69 in 2011. The latest financial performance met with investors' approval, with MSFT stock rising modestly in early morning trading following the news release.
For the most part, each of the company's four operating segments performed as expected. The top line at the Windows and Windows Live division fell back modestly for the year, but Windows 7 remains quite popular, with particular strength in demand coming from the corporate level. Server & Tools continued to benefit from businesses moving to system virtualization, cloud computing, and the need to analyze complex data sets. Meanwhile, Office 2010, along with productivity applications Exchange, SharePoint, and Lync, once again carried the Microsoft Business Division forward. Revenues at the Online Services Division showed improvement, as did the group's operating performance, though losses are likely for some time yet, as the competition in this arena is keen. Finally, the popularity of the Xbox gaming console and a degree of traction for Windows Phone were positives for Entertainment and Devices, though operating profits lagged for the final quarter and year, reflecting higher costs.
Microsoft's prospects for fiscal 2013 are good, in our view. For starters, Windows 8 is set for general release in late October. The new operating system will span a broad range of computing platforms from PCs, to tablets, to smartphones. New products at Server & Tools should also keep Microsoft in the game in the datacenter, an arena of strength that is not always given its due. In addition, we expect the Microsoft Business Division will continue delivering the goods, with the next generation of Office in the works. As is stands now, though, we are maintaining our revenues and earnings estimates of $80.5 billion and $3.05 a share for fiscal 2013. Nonetheless, our sense is MSFT shares have room to advance from their recent levels, and would fit nicely in even conservative portfolios.
About The Company: Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2011 were as follows: Microsoft Business, 31.7% of total; Windows & Windows Live, 27.2%; Server and Tools, 24.4%; Entertainment & Devices, 12.7%; Online Services, 3.6%; Other, 0.4%. Research & development spending as a percent of 2011 sales was 12.9%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned