Microsoft (MSFT) Stock Off on Lower Quarterly Profit
Shares of Microsoft Corporation (MSFT) were trading down -3.47 or -7.38 percent to $43.54 in Tuesday's premarket after the company reported late yesterday a lower profit for its second quarter despite a rise in revenue. In addition to the earnings news, several analysts downgraded the company's stock. Microsoft stock closed at $47.01, down -0.17 or -0.36 percent in Monday's regular trading session.
Microsoft reported revenue of $26.5 billion for the company's fiscal second quarter which ended on December 31st, 2014. Gross margin for the quarter was $16.3 billion, while operating income came to $7.8 billion and diluted earnings per share was $0.71.
The company took a $243 million reorganization charge or -$0.02 per share for integration and restructuring due to its takeover of Nokia Devices and Services in September of 2013. In addition, the charge included Microsoft's restructuring plan it announced in July of 2014.
Microsoft Chief Executive Officer, Satya Nadella said in a statement that, "Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership, we are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.
While the company reported a -13 percent decline in the licensing of its Windows OEM Pro software, device and consumer revenue grew at an +8 percent pace to $12.9 billion. Surface revenue increased +24 percent to $1.1 billion from its Surface Pro 3 and accessories, while Office 365 Home and Personal subscriptions grew to over 9.2 million, a gain of +30 percent over the same period one year ago.
Sales of its Xbox console totaled 6.6 million units with significant holiday sales and revenue from the company's phone hardware division came to +2.3 billion as the company sold 10.5 million units of its Lumia phone. Amy Hood, Executive Vice President and Chief Financial Officer said that, "We remain disciplined in our approach to operational and execution excellence, balanced with investments that drive meaningful growth for the business while increasing capital return to shareholders .
Commercial revenue increased by +5 percent to $13.3 billion as commercial cloud revenue grew by +114 percent, in large part due to Office 365, Dynamic CRM Online and Azure. Cloud revenue is now up to an annualized $5.5 billion.
Despite the encouraging numbers on the devices and cloud end of the business, its software business - which is still the company's main source of income - has been negatively impacted by a declining PC market and new lower priced licenses sold to academic institutions.
Due to its transition and offering its Windows 10 operating system as a free upgrade, several Wall Street analysts have lowered their forecasts for Microsoft, including JPMorgan (JPM), which cut its price target from $53 to $47, and Citi (C), which dropped its rating to Sell from Neutral. In addition, Nomura Securities cut its rating to Neutral with a price target reduced from $56 to $50 per share.
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