Shares of Microsoft plunged after multiple analyst downgrades and disappointing earnings
Microsoft shares fell as much as 9.9% today, falling as low as $42.35 per share after last night’s earnings report. Analysts from multiple firms have issued updated reports on the software giant, and there are several downgrades.
Microsoft’s earnings disappoint
Microsoft reported earnings of 72 cents per share on $26.47 billion in revenue for the second fiscal quarter. The revenue number was good enough to slightly beat analyst expectations of $26.3 billion, but it wasn’t enough to keep Wall Street happy.
Michael Mauboussin: Here’s what active managers can do
The debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More
Among the downgrades issued after last night’s earnings report is a price target cut from JPMorgan, who reduced it from $53 to $47 per share and downgraded the stock from Overweight to Neutral. Piper Jaffray analysts also cut their price target on Microsoft, bumping it down from $54 to $52 per share.
RBC Capital remains positive on Microsoft
One firm that wasn’t too hard on Microsoft was RBC Capital Markets. In their report dated Jan. 26, analysts Ross MacMillan and Matthew Hedberg and their associate Greg Schuck said they’ve maintained their Outperform rating and $53 per share price target on the company.
They particularly like the revenue beat and the positive surprise on operating expenditures and Total Billings. The negatives they pointed out include weaker-than-expected Windows non-Pro revenues (which fell 13% year over year), the miss on Commercial License ($18.68 billion, a 2% decline) and Billings and the CFFO miss. They say the negatives “likely outweigh” the positives “slightly.”
Microsoft’s transition close to being finished
CityIndex.co.uk Senior Market Analyst Ken Odeluga was also less harsh on Microsoft for last night’s earnings report. He told ValueWalk in an email that the company hasn’t broken the losing trend just yet.
CEO Satya Nadella doesn’t think it will take much longer to successfully transition from a licensing sales-focused company into a software-as-a-service company. Odeluga adds that there’s no “real sign” of that happening yet because there isn’t yet any “material traction” from Microsoft’s newer hardware and hybrid software products, but he sees signs of progress “remain evident.”
He points to “promising” top line momentum in the $13.3 billion in enterprise software sales compared to $12.7 billion last year. Microsoft’s cloud business also doubled and is on track to hit $5.5 billion in sales. Devices enjoyed an 8% increase to $12.9 billion, although Xbox sales fell from 7.4 million to 6.6 million units.
“Overall, the market should still be ready to cut MSFT and CEO Nadella further slack at least till that third quarter, given the signs of underlying growth,” Odeluga said in his email. “These signs could be a good omen for real traction in SaaS. If that broad model is going to accelerate to the rate of growth once seen in licenses, I think the market will expect clear signs of this by Q3 at the latest.”