Microsoft (NASDAQ: MSFT) had, if you'll pardon the pun, a soft first quarter. The data just didn't do anything for me. The software giant, which competes with Apple (NASDAQ: AAPL), Yahoo! (NASDAQ: YHOO), Google (NASDAQ: GOOG) and IBM (NYSE: IBM), reported after the close of the regular session on Thursday. The stock was down slightly in the after-hours session, which seemed reasonable enough to me.
It's not as if some huge miss was reported. It's just that the growth rates weren't the stuff of shareholder dreams. Revenues increased 9% to about $15 billion. Earnings per diluted share came in at $0.48, and that was one penny better than what Wall Street was looking for. But it was only three pennies better than the previous year's Q1 results. So, it's not like things are shooting up like a rocket for Mr. Softy.
In addition, a look at the statement of cash flows shows a decline in net cash generated from operations. That figure decreased 43% to $3.4 billion. Plus, management is being cautious in its outlook and has issued Q2 guidance for earnings that was below what Wall Street was hoping for. Microsoft says it will probably do between $0.51 and $0.53 per share; Wall Street wanted $0.55 per share. Oh well, can't please everyone. Especially not in this time period.
Get used to it, folks. Many companies will be issuing disappointing forecasts and analysts will be revising their guesses in terms of future earnings. I'm sure a lot of estimates will be coming down. Let's hope, though, that there will be a lot of Xbox 360s under Christmas trees this holiday season. Sales for Xbox 360 declined 6%. Microsoft has to get the word out that the Xbox 360 is the console to own. The gaming device is a key growth area for the company.
So, the bottom line for me as far as Microsoft is concerned is simple: it will be suffering along with everyone else, but it is a blue-chip business that pays a dividend, and those who buy now will probably be happy if they are looking to sell a couple years out. And even though Microsoft didn't do too well in terms of cash this time around, it generally generates a good flow of the green (I should have issued an alliteration warning, sorry!).
So dividends and buybacks are things that long-term shareholders can look forward to. Shorter-term traders, or those looking to get in at the best possible price, will probably get an opportunity to pick the stock up closer to the 52-week low of $20.65 as the market volatility continues. The stock closed at $22.32 on Thursday, and is being hammered over 6% in pre-market trading to $20.78, so I'm sure you can see where I'm coming from in terms of this prediction.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
10-24-2008 @ 9:55AM
Beltway Greg said...
The last five years haven't been particularly strong for Microsoft. So weak in fact that the departure of Bill Gates really had no impact on the stock nor was it extensively covered. Down 16%. It owns $25/share.
Time to head back to Davos and hang with Brad, Bono, and Angelina.
Beltway Greg