Microsoft Earnings Cheat Sheet

Did Microsoft keep its focus amid all the Yahoo hubbub? It may not matter, given the bump from the weak dollar that Microsoft is expected to get in the third quarter.

According to Thomson Financial, Microsoft is expected to report fiscal third quarter earnings of 44 cents a share with sales of $14.5 billion. Analysts expect Microsoft to handily top those numbers and raise its outlook for the upcoming fiscal year (2009).

How important is the currency exchange rates? Brendan Barnicle, an analyst at Pacific Crest, reckons that the weak dollar alone – goods sold overseas are cheaper and translate into higher revenue when you convert a currency like the euro to the greenback – could add $200 million to revenue and as much as $575 million.

Even for Microsoft that’s real money. Bottom line: It’s a safe bet that Microsoft will beat estimates. Barnicle expects Microsoft to raise its outlook for 2009. Microsoft in February projected double digit revenue growth in fiscal 2009.

Among the key items to watch:

• Chatter about Yahoo. Microsoft is likely to at least mention the Yahoo bid and reiterate that it isn’t raising its offer. The worry for Microsoft shareholders is that this Yahoo overhang will last through fiscal 2009. Let’s face it – Microsoft could buy Yahoo tomorrow and it would still take at least 12 months to get through the EU and other regulators.
• Client revenue (Vista, XP etc.): There are macroeconomic concerns, but PC shipments remain solid. Deutsche Bank analyst Todd Raker is projecting revenue of $4.3 billion for Microsoft’s client unit and figures that estimate is conservative. The big question: Is Vista enterprise licensing picking up now that Vista SP1 has been released?
• Microsoft’s business division (Office): Revenue is expected to be about $4.8 billion, flat from a year ago, said Raker. Server and tools revenue is expected to be about $3.2 billion, up 18 percent from a year ago. On the server front, analysts will be looking for data on Windows 2008 Server sales.
• Xbox shipments are expected to be 1.3 million units. The entertainment and device division is expected to bring in revenue of $1.2 billion, according to Raker.
• The online services business – the weak link in Microsoft’s empire – is expected to post $903 million, up 45 percent from a year ago. This unit is the one that’s most likely to be distracted by the Yahoo bid.

Comments

[Tavares]

I just added another 125 shares to my Microsoft position before the earnings report. Microsoft is no longer "Mr. Softy" with Mr. Ballmer in the driver's seat. Yahoo...I suggest you pull your head out your ass and realize that you have no future without the help of Microsoft. Do what is right for your shareholders and just concede.

[Jimmy Goodwin]

I think Microsoft is going to blow people away with their earnings report. People have been holding off vista, but past few months have finally gave in to the urge. They have a monopoly on computers and computers have been selling well. The Xbox has turned profitable and what a profit that is. Not to mention they've been working hard of all different kind of money spinners.

Its funny that we all hate microsoft, at least a little bit, probably because they make so much easy cash.

[Jimmy Goodwin]

"The group discussed MSFT's earnings report on Thursday, and Adami predicted the company will "crush" on earnings based on its already substantial moves. He added $35 is a reasonable price for the stock."

The stock is only at $32 now, $38 by the end of the day, you mark my words, easy money =)

[Muddling Investor]

Earnings report is one thing, conference call is quite another. I'd like to see how Xbox is doing, how much MS lost on the Web this quarter and what is the dynamic of home PCs sold, as opposed to sales to businesses.
As for easy money, I know only one kind: easily lost.

[Jimmy Goodwin]

Not in all my years have I heard analyst's use the words "crush" and "boom time" for an earnings report. This is once in lifetime opportunity, if this isn't "easy money", then I don't know what is =)

[sliman]

The penny on the street is easy money, all else takes guts.
Good luck longs I am in the QLD.

[DP]

2 Jimmy Goodwin:

Since when does MSFT has a monopoly on computers? This is rather radical and incorrect statement.

[Malkiel]

Microsoft is a massively successful computer software company that's been prematurely trying to ditch that end of their business (about 20 years prematurely) for other lines like online services to the point where they damage what they do well. Let them buy Yahoo, it will give them that online services thing that Ballmer seems to feel he needs to fill out his resume, so they can get back to perfecting the next version of Windows and Office, which will remain their bread and butter. Just do it and get it over with so there aren't any more distractions from job 1, which is the OS software. And give up that pipe dream about online services, because as Apple's partner AT&T is trying to tell us, the internet is about to collapse from lack of infrastructure anyway...

[dga]

So much for 'blowing people away' with an earnings report.

Oh, or was that 'blow them away from your stock'?

Google and network computing will domniate going forward.

[crookedwood]

I like Ballmer's approach and steady had as concerns Yahoo. His style while criticized by many reflects the ability to make critical analysis and live with it. Yahoo needs leadership that listens and engages. One quarter earnings does not reflect the potential of coming quarters. Crookedwood