Microsoft (NASDAQ:MSFT) reported earnings today that missed expectations by five cents per share. Revenue came in at $23.4 billion, which was $270 million above estimates. The revenue number was an increase of about 17% from Q4 2013.
Highlights from the Microsoft press release include a 147% Y/Y revenue increase in the cloud segment; a 40% Y/Y increase in Bing search revenue; Office 365 added 1 million subscribers and subscribers now total over 5.6 million. Lowlights include a 67.5% gross margin, which was down from 70% in Q3; operating margin of 27.7%, which was down from 32.8% in Q3; guidance on Q1 2015 for $21.2 billion - $22.3 billion in revenue compared to expectations of $23.1 billion.
In my previous article about Microsoft titled, "Microsoft: Worth $37.07 Per Share," two of the metrics that I highlighted as concerns for the company continue to be concerns.
- Margins. In this most recent earnings, gross margin and operating margin fell further and continued the trend downward for the last 3+ years.
- Valuation. In my previous article, I showed the forward P/E was at a 4-year high. The current trailing P/E now stands at 17. The EPS growth from 2013 to 2014 was a paltry 2%. The average analyst EPS growth estimate for the next five years is 7.7%. That puts the PEG ratio at 2.2.
Microsoft seems to be committed to making the hard moves necessary to regain better growth for the future. The Nokia acquisition was clearly a poor move, but now the company is wasting little time in laying off massive numbers of people to make it leaner. Cloud revenues, while still a small number, are increasing very quickly. Microsoft will be on my radar for the future, but at this point it is pricey to me and I will wait and see how well it executes in the next few quarters.
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