Microsoft’s earnings yesterday were strong and unspectacular. Highlights:
- Revenue slightly ahead of expectations, largely driven by Office; EPS in line;
- Online is losing less money than it used to, but stil losing money.
THE BOTTOM LINE: 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.
Microsoft reported another strong if unspectacular quarter, with revenue of $17.37 billion (ahead of expectations of $17.26 billion) and EPS exactly in line with targets at $0.68.
It looks like Office 2010 was the standout performer once again, as it’s been for the last year or so.
On the earnings call, the company said that Office is pulling through other products, particularly Lync (the company’s corporate IM and messaging product), which was up 25% from last year. (Scroll down to see our notes from the call.)
Microsoft also said that business PC sales were pretty good, with revenue up 5%. Consumer sales were flat, but that’s mostly due to netbooks disappearing (or being eaten by the iPad). If you ignore netbooks, sales of “traditional” PCs were up about 14%.
Also, Microsoft has decided that Skype will be counted in the Entertainment & Devices segment, alongside Xbox and Windows Phone, suggesting that it’s going to be integrated into those products first.
And in a welcome reversal from recent quarters, the Online division (Bing and MSN) actually CUT its losses from last year, to only $494 million during the quarter (down from $558 million last year). At least it’s moving in the right direction now.
The stock is down about half a percentage point after hours — it looks like Wall Street had a pretty good idea of what was coming. There may be concern over operating expenses, which are expected to be between $28.6 billion and $29.2 billion for the current fiscal year. That’s a lot higher than the $27.2 billion in operating expenses in FY’11, and is mainly because of the cost of running Skype. (Those expense numbers don’t include cost of goods.)
Here’s how the business did against expectations:
- 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.
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