MSFT Earnings: Core Business Still Strong, Online Less Of A Sinkhole
Microsoft delivered a good quarter, with EPS inline and a slight beat in revenues. The PC market ex-netbooks, which are getting eaten by the iPad, is strong. Microsoft’s core software business is still a phenomenal machine, and even though we are entering a post-PC era, this isn’t showing on Microsoft’s bottomline yet. Online Microsoft seems to be holding its own, and Windows Phone has potential, but these aren’t moving the needle yet.
- Revenue: $17.37B vs. $17.26B expected
- EPS: $0.68 vs. $0.68
- Windows: $4.87B revenue (+2% from last year) vs. $5.0B
- Business Division (mostly Office): $5.62B (+8% organic*) vs. $5.4B
- Server & Tools: $4.25B (+10%) vs $4.3B
- Entertainment & Devices (Xbox): $1.96B (+9%) vs. $1.9B
- Online (Bing & MSN): $625m (+19%) vs. $610m
- Unearned revenue: $15.67B vs. $15.7B. This is an important metric because it shows how well Microsoft is doing selling long-term contracts to big businesses.
*Microsoft moved the Forefront security products from Server & Tools to the Business Division, adding about $100 million in revenue. The 8% growth doesn’t count that revenue.
In other news…
Groupon almost broke even in Q3! As we’ve been writing for a while, Groupon does have a real, strong, defensible business. Its IPO may be a rollercoaster, but it should prove the naysayers wrong over the long haul.
Daily deals site BuyWithMe is laying off half its workforce. BuyWithMe was once the third-biggest site, after Groupon and LivingSocial. This is good for Groupon, not just because a competitor is flailing, but because it shows something we’ve been writing for months: the daily deals business has low barriers to entry, but high barriers to scale. As the biggest daily deals site, we believe Groupon has a viable business. LivingSocial probably does, too. But evidence is growing that daily deals have “Glengarry Economics”: first prize is a Cadillac, second prize is a set of steak knives; third prize is you’re fired.
AT&T reported tepid third quarter results and activated fewer iPhones than it has in recent quarters. The company has been battered by resistance to its proposed merger with T-Mobile and the increasing number of carriers who sell the iPhone. But there’s at least one bright spot: AT&T has already activated more than 1 million of the new iPhone 4S in the first few weeks of availability.
Congress probably won’t let Jack Ma buy Yahoo. And Ma probably knows it. His insistence that he wants to buy Yahoo is probably just to highlight that he’s central to any deal and a way to set himself up to buy back Yahoo’s share in Alibaba (and maybe other assets) on favourable terms.
A greater number of people are accessing social media via mobile devices– 37% more this August than the previous year, according to comScore. The future of social networking is here: in just a year, there was a 24% increase in accessing social media through a mobile browser, and a whopping 126% increase in using them through a mobile app.
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