Could Microsoft Earnings Have Been Better?

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Microsoft Corp. (NASDAQ: MSFT) reported fiscal third-quarter 2018 results after markets closed Thursday. The software behemoth reported diluted earnings per share (EPS) of $0.95 on revenues of $26.8 billion. In the same period last year the company reported EPS of $0.70 on revenues of $23.2 billion. The consensus estimates called for EPS of $0.85 on revenues of $25.77 billion.

Microsoft returned $6.3 billion to shareholders in the form of share repurchases and dividends in the third quarter of fiscal year 2018, a year-over-year increase of 37%.

The company provided no guidance but said it would do so on the conference call.

CEO Satya Nadella said:

Our results this quarter reflect the trust people and organizations are placing in the Microsoft Cloud. We are innovating across key growth categories of infrastructure, AI, productivity, and business applications to deliver differentiated value to customers.

The company’s CFO, Amy Hood, added:

With consistent investment and strong sales execution, this quarter we achieved better than expected performance across all segments. We delivered double-digit revenue and operating income growth driven by 58% growth in our commercial cloud revenue.

Intelligent cloud revenue rose 17% and Windows OEM revenue rose 4% both nominally and in constant currency. The company now claims 30.6 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 93% year over year.

The consensus estimate for the company’s 2018 fourth fiscal quarter calls for EPS of $1.00 on revenues of $28.01 billion. For the full fiscal year ending in June 2018, EPS is forecast at $3.65 on revenues of $107.29 billion.

Revenue from sales of the company’s 2-in-1 Surface rose by 32% and search advertising revenue rose 16%, excluding traffic acquisition costs.

LinkedIn revenue rose 37% year over year and gaming revenue rose 18% driven by Xbox software and services revenue growth of 24%, primarily on the strength of third-party titles.

Shares traded up about 0.3% at $94.50 in after-hours trading. The stock closed at $94.26 in a 52-week range of $67.14 to $97.24. Prior to the earnings announcement the 12-month consensus price target on the stock was $105.74.

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