Is Microsoft The Ultimate Value Trap?
Amit Chokshi, CFA • 90 Comments
Amit Chokshi, CFA • 90 Comments
Is Microsoft The Ultimate Value Trap?
Amit Chokshi, CFA • 90 Comments
Amit Chokshi, CFA • 90 Comments
Dec. 11, 2015, 2:49 PM
- NPD estimates U.S. physical retail video game sales fell 7% Y/Y in November to $993.9M, after having dropped 3% in seasonally weaker October to $349.4M. Aggressively-priced console bundles likely weighed on standalone game sales. Hardware sales rose 11% to $1.12B after being roughly flat in October, and peripheral/interactive toy sales rose 6% to $357.7M after rising 18% in October.
- Not surprisingly, Activision's (ATVI -3.2%) Call of Duty: Black Ops III was the month's top-selling game, followed by Bethseda's Fallout 4. However, Activision's Destiny: The Taken King fell out of the top-10, after coming in at #7 last month.
- Electronic Arts' (EA +1.2%) Star Wars: Battlefront, which recently saw a $20 GameStop price cut amid mixed critic and user reviews, was #3. EA also took the #4, #6, and #7 spots via Madden NFL 16, FIFA 16, and Need for Speed. Madden and FIFA were also #4 and #6 last month.
- Take-Two's (TTWO -1%) NBA 2K16 dropped three spots to #5, while WWE 2K16 fell out of the top-10. Ubisoft's (OTCPK:UBSFY) Assassin's Creed: Syndicate and Just Dance 2016 were #9 and #10; neither was in the top-10 last month.
- Microsoft's (NASDAQ:MSFT) Halo 5: Guardians fell from #1 to #8. With Halo 5 providing less of a lift to Xbox One sales, the PlayStation 4 (NYSE:SNE) regained its status as the top-selling U.S. retail console.
- EA remains green following the data and news the company is entering the eSports market. Activision (like GameStop) is underperforming amid a 1.8% Nasdaq drop, and Take-Two is down modestly.
- Last month: Black Ops 3 sells $550M in opening weekend
Oct. 23, 2015, 9:16 AM
- While Microsoft (NASDAQ:MSFT) guided to FQ2 revenue of $24.8B-$25.4B vs. Street estimates of $24.8B, the revenue mix has gross margin guidance nearly 200 basis points less than consensus, says analyst Heather Bellini. By her team's count, it means an implied FQ2 EPS range of $0.68-$0.71 vs. the $0.72 consensus.
- For the full-year, Bellini cuts her revenue forecast in higher margin businesses (PBP and IC), though hiking estimates in lower margin units like Xbox and Surface.
- She reiterates a Sell rating, while lifting the price target to $45 from $40.
- Previously: Sell-side a buyer after Microsoft reports (Oct. 23)
- Shares +9.5% to $52.61
Oct. 23, 2015, 9:14 AM
Oct. 23, 2015, 9:07 AM
- Taking note of the earnings beat and inline FQ2 guidance, Credit Suisse analyst Philip Winslow says management's cutting of FY2016 operating expenses guidance to $31.9B-$32.1B (from $32.1B-$32.4B) could prove conservative.
- He boosts his FY16 EPS outlook to $2.88 from $2.72, and his price target to $60 from $55. The stock remains Outperform-rated.
- Also lifting the price target to $60 from $55 is Deutsche Bank, while FBR raises to $60 from $53.
- There's also an upgrade in the mix as BAML lifts MSFT to a Buy from Neutral. The price target is $63.
- Shares +10% to $52.83 in the premarket.
- Previously: Microsoft issues solid FQ2 guidance; shares +8% (Oct. 22)
- Previously: Microsoft beats by $0.08, beats on revenue (Oct. 22)
Oct. 22, 2015, 7:38 PM
- After several quarters of providing light guidance, Microsoft (NASDAQ:MSFT) is singing a different tune today: The software giant has guided on its call for its three reporting segments to collectively post FQ2 revenue of $24.8B-$25.4B, in-line with a $25.1B consensus and likely sparking hopes of upside given Microsoft's history of guiding conservatively.
- Productivity & Business Processes is expected to see revenue of $6.6B-$6.7B, Intelligent Cloud $6.2B-$6.3B, and More Personal Computing $12B-$12.4B. Forex is expected to have a 4% impact on revenue growth, after having a 5% impact in FQ1.
- Though revenue fell 7% Y/Y in FQ1 due to PC weakness and cloud transition (pushes out revenue recognition), cloud subscription billings helped the unearned revenue balance (non-GAAP) rise 3% Y/Y (9% exc. forex) to $23.1B. The contracted but not billed balance was above $23.5B.
- Also: Bing, once a large cash sinkhole, is finally profitable. Search-related revenue topped $1B in FQ1, with search ad revenue (ex-TAC) rising 23% Y/Y. Windows 10/Cortana integration appears to be helping: Nearly 20% of the quarter's search revenue came from Windows 10 devices.
- Other details: 1) Office commercial product/services revenue fell 2% Y/Y thanks to the 365 transition. Office consumer revenue fell 13%. 2) Xbox Live monthly active users rose 28% to 39M. 3) Enterprise mobility management (EMM) software customers more than doubled Y/Y to over 20K. 4) Windows volume license revenue fell 3% Y/Y, and Surface revenue fell 26% to $672M ahead of the Surface Pro 4 launch.
- Microsoft is trading at $51.89 after hours.
- FQ1 results, details, earnings slides (.ppt), guidance (.ppt)
Oct. 22, 2015, 4:48 PM
- Microsoft's (NASDAQ:MSFT) Intelligent Cloud reporting segment (one of the three main segments in Microsoft's new reporting structure, covers server products, Azure, and enterprise services) was easily the company's best-performing segment in FQ1, with revenue rising 8% Y/Y (14% exc. forex) to $5.9B. Segment op. income rose 14% to $2.4B. Azure revenue more than doubled Y/Y.
- Productivity & Business Processes (Office/Office 365 and Dynamics apps) revenue fell 3% Y/Y (+4% exc. forex), with sales pressured by the shift from up-front licenses to cloud subscriptions. Op. income fell 7% Y/Y to $3.1B. Office 365 consumer subs grew by ~3M Q/Q to 18.2M; Dynamics revenue grew 12% in constant currency.
- More Personal Computing (Windows, search, games, hardware) revenue fell 17% Y/Y (13% exc. forex) to $9.4B due to PC weakness and declining phone sales (-54% in constant currency). Op. income fell 4% to $1.6B. With the Windows 10 launch providing a boost, Windows OEM revenue fell 6% Y/Y, an improvement from FQ4's 22%.
- Financials: Lifting EPS: GAAP operating expenses fell 7% Y/Y to $7.3B (job cuts at work) after backing out year-ago one-time charges. Also helping: $4B was spent on buybacks. Gross margin rose 30 bps Y/Y to 64.6%. Microsoft ended FQ1 with $99.4B in cash/short-term investments (much of it offshore), and $37.5B in debt.
- Shares have risen to $51.66 after hours, making new 52-week highs along the way.
- FQ1 results, PR
Oct. 22, 2015, 4:11 PM
- Microsoft (NASDAQ:MSFT): FQ1 EPS of $0.67 beats by $0.08.
- Revenue of $21.7B (-6.5% Y/Y) beats by $670M.
- Shares +4%.
Oct. 14, 2015, 9:15 PM
- Demand is still strong among teens for the newest generation of videogame consoles, Piper Jaffray says -- and that's good news for leading game makers like Activision Blizzard (ATVI +0.4%) and Electronic Arts (EA +3.1%).
- Uptake of the Xbox One (MSFT -0.5%) and PlayStation 4 (SNE -1.5%) consoles "is at the highest level we have seen, reinforcing our expectation for a much more rapid pace than prior-gen" consoles, says analyst Michael Olson, a "clear positive" for Activision, EA, Take-Two Interactive (TTWO +0.2%) and retailer GameStop (GME -1.1%).
- The firm's semiannual survey found 73% of videogame-playing teens own an Xbox One or PlayStation 4, or intend to get one -- up from 70% last spring and 67% last fall. Some 39% currently own one of the newer consoles, up from 37% in the spring and 26% last fall.
- "We believe the combination of next-gen console uptake and a robust lineup of AAA titles will lead to sustainable software growth through second-half 2015 and into 2016," Olson writes.
- Mobile players are stable, but the number who'll pay is rising as well. Some 24% of teens who play mobile games by makers like Glu Mobile (GLUU +1.2%) and King Digital (KING -0.4%) say they spend in-game money, the survey said, up from 21% in the spring.
Oct. 13, 2015, 12:24 PM
- The enemy of my enemy is my friend: Yandex (NASDAQ:YNDX) has struck a deal with Microsoft (NASDAQ:MSFT) to act as the default home page and search engine for the Edge and Internet Explorer browsers on Windows 10 devices in Russia, Turkey, and Ukraine. The agreement follows a similar deal between Microsoft and Baidu for China.
- The deal gives Yandex a shot in the arm as it tries to halt Google's (GOOG, GOOGL) share gains: LiveInternet estimates Google's Russian search share has risen from 27% in Jan. 2014 to 35% last month, while Yandex's has fallen from 62% to 57%. Yandex jumped in September after Russian regulators declared Google's Android app/service bundling requirements (have done much to strengthen the company's mobile search position) violated competition rules.
Sep. 11, 2015, 2:46 PM
- A buyout rumor has once more given a lift to AMD (AMD +9.8%): This time, Fudzilla (citing "industry sources") states Microsoft (NASDAQ:MSFT) is "seriously talking" to the hard-luck chipmaker about acquiring it.
- A number of AMD buyout rumors have come and gone over the years without panning out. KitGuru reported in June Microsoft "may acquire" AMD.
- AMD was previously trading near breakeven in spite of an upgrade to Market Perform from Bernstein's Stacy Rasgon, who argued bad news has been priced in and that "the possibility of a lifeline may be growing."
Aug. 26, 2015, 4:21 PM
- The Nasdaq has closed its latest ultra-volatile day up 4.2%. Chip stocks, hit hard in recent weeks amid China/inventory concerns, were among the standouts (SOXX +5%) during the rally: Big gainers included Nvidia (NVDA +7.5%), Skyworks (SWKS +6.9%), Qorvo (QRVO +5.9%), Xilinx (XLNX +6.3%), Analog Devices (ADI +7.1%), Linear (LLTC +6.1%), SanDisk (SNDK +7.4%), ON Semi (ON +6.2%), and Cavium (CAVM +5.6%).
- Cybersecurity plays and various other enterprise tech names also did well. Standouts included HP (HPQ +5.5%), Palo Alto Networks (PANW +6%), Rackspace (RAX +9.8%), Red Hat (RHT +5.9%), KEYW (KEYW +8.1%), Brocade (BRCD +5.6%), ShoreTel (SHOR +5.7%), Violin Memory (VMEM +14.7%), and Rapid7 (RPD +7.2%).
- In addition to HP, tech large-caps turning in big gains included Apple (AAPL +5.7%) Microsoft (MSFT +5.5%), Google (GOOG +7.7%), and Intel (INTC +5.5%). Google benefited from a Goldman upgrade.
- KEYW announced a CEO change yesterday afternoon. HP and Brocade are adding to last week's post-earnings gains. Skyworks/Qorvo peer Avago has posted an FQ3 beat after the close.
Aug. 24, 2015, 8:03 AM
- Tech stocks in the U.S. are sharply lower in early action after the sector fell just as hard as broad market averages in China and Japan. Tech heavyweights aren't getting spared amid the carnage.
- Google (NASDAQ:GOOG) -4.1% premarket to $587.31.
- Apple (NASDAQ:AAPL) -5.1% to $100.38.
- Microsoft (NASDAQ:MSFT) -3.9% to $41.41.
- Facebook (NASDAQ:FB) -3.4% to $83.05.
- Yahoo (NASDAQ:YHOO) -6.6% to $30.75 and Alibaba (NYSE:BABA) is down 8.7% to $62.26 as concerns over growth in China mount.
- The Nasdaq 100 futures contract is off 4.8%.
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Jul. 22, 2015, 3:07 PM
- Microsoft (NASDAQ:MSFT) hasn't seen any upgrades/downgrades after beating FQ4 estimates, reporting strong cloud growth and major Windows/traditional Office declines, and once more providing conservative guidance. A handful of firms have tweaked their targets.
- Bernstein's Mark Moerdler (Outperform), among Microsoft's defenders, notes the commercial cloud annual run rate ($8B) rose 27% Q/Q, and that cloud margins also improved. "We estimate that the Gross Margin for each incremental dollar of revenue, given the current mix of SaaS, PaaS, and IaaS is at a minimum~70%, if not greater, with long term SaaS margins of 86%+ and Azure margins equivalent to Amazon’s at similar scale."
- Credit Suisse's Philip Winslow (Outperform): "We believe Microsoft can return to double-digit EPS growth by (1) continued rationalization of its cost structure, (2) further divestitures/exits of non-core businesses, (3) optimization of its capital structure, (4) stabilization in Windows pricing, and (5) an accelerated shift to Office 365 ... Furthermore, we believe that Microsoft Azure will emerge as the clear #2 market share player in public IaaS [behind Amazon] and will arise as the leader in public PaaS.”
- Cowen's Tim Arcuri notes Microsoft's Devices & Consumer licensing guidance (covers Windows OEM and traditional consumer Office licensing, as well as Android royalties) implies ~9.4% Q/Q growth, which in turn points to a healthy (Windows 10-driven) rebound in PC demand. D&C licensing was down 34% Y/Y in FQ4 to $1.7B, thanks to Windows/Office declines and the end of Nokia payments.
- Raymond James' Michael Turtis (Market Perform) is worried about slumping commercial on-premise software sales. "Commercial license $10,451 million (-7%) missed consensus $10,550 million (-6%), guidance $10.5-10.6 billion on both Office and Server weakness, with Server decelerating to 5% CC from F3Q’s +13% ... Commercial license billings declined 12% y/y, below revenue decline of -7%, though some of this could be transition to cloud ... We reduced our [FY16] estimates across product categories given the broader slow down and took down our Server product estimates given persistent forex impact and, possibly, the first signs of broader cannibalization of Server by Azure cloud."
- Prior Microsoft coverage, CC transcript
Jul. 21, 2015, 7:38 PM
- Microsoft (NASDAQ:MSFT) guides on its FQ4 CC for its various reporting segments to collectively see FQ1 revenue of $20.7B-$21.3B, below a $22.8B consensus. The company has been guiding cautiously for several quarters.
- Forex is expected to have a 5% impact on FQ1 and FQ2 sales growth. Microsoft promises "Windows 10 momentum" will provide a lift during the second half of FY16 (ends June '16), and that Bing (responsible for major losses in past years) will turn profitable during the year. In the wake of the company's latest job cut announcement, FY16 operating expense guidance has been cut to $32.1B-$32.4B. The tax rate is expected to be at 24% (+/- 1%).
- Ahead of the job cuts and the related narrowing of Microsoft's phone efforts, phone revenue fell 38% Y/Y to $1.23B (feature phone decline), with a negative gross margin. Lumia units rose 10% to 8.4M, but Lumia revenue fell due to a lower ASP.
- Also: 1) Though revenue fell 5% Y/Y, the unearned revenue balance rose 1% Y/Y to $25.3B, and the contracted but not billed balance rose by ~$500M to $24.5B. 2) Office 365 consumer subs rose by nearly 3M Q/Q to 15.2M; traditional Office consumer revenue fell 42%. 3) Xbox shipments rose 30% to 1.4M. 4) Azure revenue and compute usage rose by triple digits Y/Y, and enterprise mobility management (EMM) software customers rose by nearly 90% to 17K+. 5) FQ4 capex totaled $1.7B.
- Microsoft is down to $45.38 in AH trading, maintaining the losses seen after the FQ4 report was published.
- FQ4 results, details, guidance (.ppt), earnings slides (.ppt)
Jul. 17, 2015, 5:41 PM
- Videogame sales grew in June, with new physical games and hardware up 18% in the U.S. Y/Y, to $869.4M, according to NPD. That's a rebound from May's 13% decline.
- The industry showed growth in all three major areas: Hardware sales were $313.1M (up 8%); accessories were $210.7M (up 34%); and game software sales were very strong at $345.5M (up 21%, though against a weaker 2014 comp) by calling on the Batman. The settling-in of next-gen consoles continues, as it was the fourth month of Y/Y software increases.
- Batman: Arkham Knight (TWX -1.4%) led the software charts and became the year's second-best seller out of the gate, behind another Warner Bros. release, Mortal Kombat X.
- June was Warner's month: Its other titles Lego Jurassic World, The Witcher 3: Wild Hunt and Mortal Kombat X joined Batman in the top 10 at Nos. 3, 4 and 8 respectively. Warner's dollar sales are up 217% vs. the first half of 2014, making it the top corporate publisher this year, says NPD's Liam Callahan.
- In longer-term holdouts, Minecraft (NASDAQ:MSFT) came in at No. 6, Grand Theft Auto V (TTWO +4%) was No. 7, Take-Two's NBA 2K15 was No. 9 and Call of Duty: Advanced Warfare (NASDAQ:ATVI) No. 10.
- Next-gen consoles like PS4 and Xbox One led the way in hardware growth, up 15%. The PS4 (SNE +0.5%) led console sales again, the company said, as it has for every month this year except for April.
Jul. 13, 2015, 3:03 PM
- Microsoft's (MSFT +2.2%) Cortana Analytics Suite takes aim a burgeoning market for enterprise big data/analytics software/services. It includes the Cortana virtual assistant, the Power BI business intelligence/data visualization software platform (just refreshed), face, text, speech, and vision analytics APIs, Azure machine learning and data warehousing services, and Azure recommendation and forecasting APIs.
- Microsoft exec Joseph Sirosh: "We actually found customers are stitching all of these pieces together to do a lot of these integrated scenarios that cover everything from looking at what happened in the past to predicting to driving some specific actions within an automated system ... if we brought these things together in an integrated suite that worked very well together, it makes for a lot of high-value scenarios."
- The suite will be available this fall on a subscription basis. It follows Microsoft's acquisitions of mobile BI/data visualization startup Datazen and statistical analytics software firm Revolution Analytics. BI/data visualization software firms Tableau (DATA -0.1%) and Qlik (QLIK +1.6%) are among the companies Microsoft is competing against.
- Also unveiled: GigJam, a productivity service that that uses screen-sharing and (with Cortana's help) the pulling of data from a variety of Microsoft apps to create a shared workspace. It relies on a mixture of Azure services and PC/mobile apps. Satya Nadella: “This is a glimpse of what can happen when we break down the walls between devices, applications, and people."
- With the help of a 1.4% Nasdaq gain, Microsoft has topped $45. FQ4 results arrive on July 21.
- Earlier: Microsoft strikes Azure deal with Rackspace
Microsoft Corp. engages in the provision of developing and marketing software and hardware services. Its products include operating systems for computing devices, servers, phones and intelligent devices. It also offers server applications for distributed computing environments, productivity... More
Industry: Application Software
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