Microsoft Shocks Investors With Strong First-Quarter Results



Microsoft Corp. (NASDAQ:MSFT) closed the regular session on Thursday down 0.12 percent at $33.72 per share, but climbed as much as 6 percent in post-market trading after reporting strong fiscal first-quarter financial results after the closing bell. Revenue grew 16 percent on the year to $18.5 billion, beating the mean analyst estimate of $17.79 billion. Un-adjusted earnings climbed 17 percent to 62 cents per diluted share, beating the mean analyst estimate of 54 cents per share. As-reported operating income grew 19 percent on the year to $6.3 billion.

Revenue within Microsoft’s Devices and Consumer segment grew 4 percent on the year to $7.46 billion, accounting for about 40 percent of total revenue. Within the division, search revenue grew 47 percent, and revenue from sales of the Surface grew to $400 million.

Revenue within Microsoft’s Commercial segment grew 10 percent to $11.2 billion, accounting for about 60 percent of total revenue. SQL-server revenue grew by “double-digits,” and premium server revenue grew by more than 30 percent. COO Kevin Turner highlighted Microsoft’s investments in Hyper-V, System Center, and Lync as growth drivers. Revenues at these productivity server offerings also grew by “double-digits.”

Turner also highlighted strong demand for Office 365 — commercial cloud revenues grew 103 percent in the quarter.

Last week, revealing a bit of foresight, Jefferies upgraded Microsoft from Hold to Buy and increased its price target on the stock from $33 to $42, about 24 percent higher than Thursday’s close and about 18 percent higher than where the stock was in post-market trading after the earnings release. If Microsoft performs as well over the next 52-week period as it did over the previous 52-week period, the stock will validate Jefferies’ target.

The Jefferies analyst responsible for the upgrade cited, among other things, the benefits Microsoft is expected to reap from transferring its flagship Office suit to the cloud. Of all the products that Microsoft offers, Office 365 is perhaps best equipped to deal with similar products offered by competitors — chiefly Google (NASDAQ:GOOG) in this case. Office reportedly won over 440 corporate customers from Google in fiscal 2013.

Where it is less clear that Microsoft will have success competing with Google — and, of course, Apple (NASDAQ:AAPL) — is in the smartphone and tablet department. Windows 8 has generally had a love-it-or-hate-it reception, and its recent failed update of Windows RT 8.1 was definitely a blemish.

Perhaps the most significant issue facing Microsoft over the next year is its search for a new CEO. Steve Ballmer announced recently that he would be stepping down within the year.