Friday, July 24, 2009

Microsoft's big miss (MSFT)

AlphaNinja - Last night Microsoft (MSFT) shocked the Street, reporting revenues that were a billion short of expectations -->> that was 9% shy of the expected $14.4billion, and the stock is down 9.5% this morning. Investors are reacting in a "lenient" way if you will, writing off some of the shortfall as a pause in orders before Windows 7 comes out this fall...Amidst all the freaking out over the revenue shortfall, earnings were in line with expectations of 36cents, excluding certain one-time costs. In-line earnings on a $1billion revenue miss? Not all bad...


Deutcshe Bank -->> Almost every business unit missed revenue expectations. "A pause in PC purchases in front of the new OS(operating system) cycle as well as some channel inventory reductions contributed to the results." They believe Windows 7 will be a positive once it launches in October as pent-up demand, opportunities for software upgrades and the positive impact on netbook OS ASPs (average selling prices).

FBR Capital -->> The results were bad enough for FBR to downgrade the shares, although they see a pickup in the 2nd half of 2009...

Credit Suisse searches for the positives -->> They think that given Intel's great results, Microsoft will benefit from a "catch-up" in Windows license sales later this year. They believe the company's operating model should show significant leverage once the economy recovers.

With the stock off nearly 10% today, Microsoft has a market value of $206billion. Net out the $30billion in cash and that goes to $176billion. 2010 Free Cash Flow looks to be about $17billion, a FCFY of 10%. That's a handsome yield, and it compensates investors for the risks with owning the shares.

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