Microsoft shares lower by 7% following in line earnings
Microsoft (MSFT $43.40 -3.61) shares are trading lower by 7% after the company reproted second quarter GAAP EPS of $0.71 which is line with estimates, while revenues rose 8% to $26.47 billion which is roughly in line with estimates. EPS include $0.06 in unfavorable items ($0.02 from restructuring/integration and $0.04 from an IRS tax adjustment).Devices and Consumer revenue grew 8% to $12.9 billion, with the following business highlights: Surface revenue of $1.1 billion, up 24%, driven by Surface Pro 3 and accessories Office 365 Home and Personal subscribers increased to over 9.2 million, up 30% sequentially over prior quarter Search advertising revenue grew 23%, with Bing U.S. market share at 19.7%, up 150 basis points over prior year Xbox console sales totaled 6.6 million units, with strong holiday season performance Phone Hardware revenue of $2.3 billion, with 10.5 million Lumia units sold driven by growth in affordable smartphones Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers Windows OEM non-Pro revenue declined 13%, with license growth from opening price point devices Commercial revenue grew 5% to $13.3 billion, with the following business highlights: Commercial cloud revenue grew 114% driven by Office 365, Azure and Dynamic CRM Online, and is now on an annualized revenue run rate of $5.5 billion Office Commercial products and services revenue declined 1%; transactional revenue was impacted by the continued transition to Office 365 and declines in commercial PCs following the XP refresh cycle Server products and services revenue grew 9%, with double-digit growth of SQL Server and System Center Windows volume licensing revenue increased by 3%, with annuity revenue growth partially offset by declining transactional revenue. Co also announced its intention to complete the existing $40 bln share repurchase authorization by Dec 31, 2016.
On the conference call, the company provided third quarter revenue guidance of $20.6-21.4 billion which is below estimates. Guidance is based on co's current view of FX rates; should US dollar continue to strengthen co would see a negative impact to earnings, revenue, and the balance sheet; co sees a 4 point headwind due to FX; co expects gross margin to be lower of the next couple of quarters Devices and consumer In licensing revs expected between $3.4-3.6 bln, In computing and gaming revs expected between $1.5-1.7 bln In phone hardware revs are expected to be $1.4-1.5 bln. Other revs expected between ~$2 bln Commercial Co sees commercial licensing revs of $9.7-9.9 bln Co sees commercial other revs of $2.6-2.7 bln.
MSFT shares are trading higher by 27% over the last 12 months. If today's downtrend continues look for support near the $42.50-43.00 area
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