Microsoft Corporation (MSFT): Against Tough Odds, There’s Still Value in This Tech Giant

Page 1 of 2

For all of the talk about Microsoft Corporation (NASDAQ:MSFT)‘s  sudden irrelevance in tech, this is a company that still produces tons of cash every quarter. However though, investors are nonetheless frustrated that Office and Windows continue to rake in the lion’s share of Microsoft’s revenue. The problem? These two franchises are no longer sexy. With PC sales on the decline, this concern in justified. Then again, on the heels of Microsoft’s Q2 report, there are now signs that things are about to change.

As much as Wall Street still values Microsoft Corporation (NASDAQ:MSFT)’s influence on tech, analyst would love the company more if it were under new management — let’s first make that clear. While the company is able to boast solid cash flow, it does not have a reputation for effectively deploying its capital — at least not to the extent that it’s able to produce the growth that Wall Street craves.

Microsoft Corporation (NASDAQ:MSFT)For this reason, the company is rarely given the benefit of the doubt, which was evident after a solid Q2 report that went broadly unnoticed. For the quarter, Microsoft Corporation (NASDAQ:MSFT) beat Street EPS estimates by $0.01 — posting $0.76 per share on revenue of $21.46 billion. After revenue declined 8% in the first quarter, 3% growth in Q2 (albeit modest) was a welcomed surprise.

Likewise, although net income was weak, shedding almost 3% year over year, it reverses a 22% EPS decline in the first quarter. Bears will point out that these declines underscore Microsoft’s critical dependence on PCs. Though this might be true, that revenue grew 34% sequentially suggests that there’s an uptick on this reliance.

Besides, the Windows division picked up the slack this time, posting $5.9 billion in revenue, up 24%. This comes after a 33% decline in the first quarter. Microsoft Corporation (NASDAQ:MSFT) said it sold 60 million licenses of its newest operating system, Windows 8, which led to a 14.4% increase in operating income.

Surprising performances from recent launches
Windows 8, which was launched in October, had come under fire due to disappointing initial sales results. But the quarter told a different story. It was also encouraging that the company’s new Surface tablet, which has shown to struggle against Apple Inc. (NASDAQ:AAPL)‘s iPad, performed better than expected. This is even though Samsung’s Galaxy Tab and Amazon.com, Inc. (NASDAQ:AMZN)‘s Kindle Fire have been considered the only true threats.

In that regard, Microsoft’s improved unit sales had a noticeable effect on Apple’s disappointing Q1 results, which also revealed meaningful gross margin compression of 38.6%. By contrast, Microsoft Corporation (NASDAQ:MSFT)’s gross margins came in stronger than expected at 73.5%, beating Street estimates by 50 basis points.

Also, consider that even though Apple posted $13.81 per share — beating estimates of $13.34 — Apple missed on revenue. Likewise, that Apple sold (only) 47.8 million iPhones in the quarter was considered “soft,” as buy-side analysts were looking for 50 million. This means that even though Apple remains the leader, there’s a noticeable shift in the tide. If Apple is not careful, it could turn into a tsunami.

But Apple just proved it knows what’s at stake by having recently announced the availability of a new iPad with storage capability of 128 GB. Apple is now targeting the corporate user. Plus this announcement comes just as Microsoft Corporation (NASDAQ:MSFT)is due to launch its second version of the Surface tablet called Surface Windows 8 Pro. In other words, the chess game is about to get more interesting.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

The 10 Biggest Tax Havens in the World to Stash Your Money

The 15 Most Murderous Countries in the World

10 Largest Colleges in the World: Bigger Isn’t Always Better

Comedians in Cars Getting Coffee: The 6 Comedians Seinfeld Needs to Interview

Easy Money: The 10 Most Successful Investors in the World Today

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!