Microsoft (MSFT) Sluggish After Earnings, But Slew Of Product Launches Could Be Catalyst

Microsoft (MSFT) shares still can’t seem to take off, even after posting record fourth quarter and full year earnings. Last week, Microsoft reported great numbers, confirmed guidance, and touched on some new product offerings that could prove to be catalysts for the company’s shares.  If you look at the longer term chart, the stock actually remains in a bullish pattern, having broken out of a long one year base earlier this year and digesting those gains over the past several months.  Technically, shares of MSFT are offering a 2nd chance entry point at current levels.

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In the fourth quarter, Microsoft saw revenue of $18.06 billion and net income of $192 million. Earnings per share were reported as $0.06. These numbers of course all included a $6.19 billion charge in relation to Microsoft’s write-off of the acquisition of aQuantive. Adjusted revenue was $18.6 billion. Microsoft saw a bigger profit with the adjusted numbers of $6.93 billion (operating income) and $0.73 (earnings per share).

Full year revenue was also affected by the write-down of aQuantive. Adjusted without the write-off, the company earned a record $74.26 billion in revenue. Microsoft was able to run a profit of $2.78 in earnings per share, on operating income of $28.5 billion.

Broken down by operating segment for the fourth quarter (full year):

  • Server & Tools: $5.1 billion, +13% ($18.7 billion, +12%)
  • Windows: $4.1 billion, -13% ($18.4 billion, -3%)
  • Online: $735 million, +8% ($2.9 billion, +10%)
  • Microsoft Business: $6.3 billion, +7% (24.0 billion, +7%)
  • Entertainment: $1.8 billion, +20% ($9.6 billion, +8%)

As you can see, Microsoft experienced growth across all of its segments except for one. Full year and fourth quarter earnings were down from last year in the Windows segment. Windows has a new product offering out later this year, which should help boost 2013 fiscal year revenue and turn this area more profitable. Over 50% of Worldwide enterprise desktops count on Windows 7.

The Entertainment segment saw huge growth numbers in the fourth quarter. The results were led mostly by the integration of Microsoft’s acquisition of Skype. The other key part of the Entertainment segment is XBOX. The XBOX 360 is the best selling console in the United States. The console has been number one for 18 consecutive months. Microsoft has extended partnerships to bring new television and video options to XBOX users.

Another strong area of improvement for Microsoft is Bing. The company has lagged Google for sometime in the internet search market. In the month of June, Bing did have a 15.6% market share of search. Bing has grown its share by 120 basis points from the previous year. Microsoft has launched an extensive television advertising campaign for Bing to showcase how the search engine has become more social by integrating your friend’s information into searches.

Later this year, Microsoft will release new versions of Windows, Office, and Windows Service. Microsoft will also have a go at creating a new line of smartphones, using its Windows technology. Microsoft is also in the process of launching a new gaming console. The new XBOX console is rumored to be released in time for the 2013 holiday season.

Microsoft reaffirmed their guidance of $30.3-$30.9 billion in 2013 operating income. This represents a 6-8% increase in profits. Shares of Microsoft continue to be stuck below $30. The shares have traded between $23.79 and $32.95 during the last fifty two weeks. Despite being one of the best performers in the last several decades, Microsoft shares are down 0.4% in the last five years, and up marginally (2.7%) year to date. Microsoft has an exciting two years ahead of it with huge product launches. Time will tell if the new products affect the share price.

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