Earnings Cheat Sheet: Microsoft Thrills Investors, Fewer Signs of Recession Chills

In the middle of September, Elliot Turner penned the article, “Does the Microsoft Dividend Move Presage a Tech-led Market Rally?” Six weeks later, the tech-driven Nasdaq market is up over 200 points, or 8.7%. On Thursday, Microsoft (MSFT), a company known for its bread-and-butter Windows and Office software, is now seeing a high-growth lift from gaming with the Xbox 360 and the bright outlook for the Kinect. Here’s why the titanic Redmond, WA-based company is fueling the tech rally and the overall economic recovery relative to last year’s doom-and-gloom:

Earnings: Net income climbed to $5.4 billion, or $.62 cents per share. In the same quarter a year ago, MSFT earned $3.6 billion, or $.40 cents per share. Year-over-year, MSFT issued a profit jump of 52%.

Revenue: Increased 25% to $16.2 billion, from $12.9 billion a year ago.

Actual versus Wall Street Expectations: Analysts expected Microsoft to earn $.55 per share and $15.8 billion in revenue. Thus, MSFT topped analysts’ coverage of the company by $.07 per share and $400 million in revenue, both numbers a big enough surprise to dazzle shareholders with a dose of turnaround excitement.

Notable Stats: The Windows division posted a big jump in revenue in the first quarter to $4.8 billion from $2.9 billion.

Sales for Xbox 360 grew 38% during the quarter. The company said over 2.8 million consoles were sold in the quarter, up from 2.1 million sold last year in the same quarter.

MSFT’s business unit revenue jumped to $5.1 billion from last year’s quarterly gain of $4.5 billion.

Microsoft showed a cash and short term investments balance of $44.2 billion, up $7.4 billion during the quarter ($4 per share in cash).

MSFT spent $4.4 billion on share repurchases.

Did You Hear That? Microsoft general manager of investor relations Bill Koefoed stated, “Businesses are spending money…the product lineup we have is as healthy as its ever been.”

Commentary: Holiday season is approaching and the commercials for the new Kinect are beginning to pop up as the new must-have gaming experience. Kinect has the potential to be the “Wii upgrade.” We’ll have to see how it plays out in the early stages of holiday shopping season. On a technical basis, MSFT shares are trading above their 50-day moving average, yet still slightly below their 200-day moving average. The company’s shares started 2010 above $30 per share. Since the flash crash period earlier this year, MSFT shares have been out-of-favor and present a compelling value opportunity to investors as they gradually get back to the starting line of 2010. Some fund managers and institutions could be late to the band wagon of record revenues this quarter and might feel more confident in the portfolio reallocation to MSFT shares as they look to score a good year for their clients.

Disclosure: Long MSFT and a Wall St. Cheat Sheet Premium Pick