Microsoft’s forecast for the company’s Q4 is $23.05B for revenue and $0.58 for EPS. Compared to last year, analysts are expecting a 2c drop in profitability, with a 5% rise in revenue….
“A drop below $0.60 EPS would be unfortunate for Microsoft, as it would halt the growth streak of the past four quarters, after a disappointing fiscal 2014 when EPS regressed about 7% on the year, with Q1 and Q3 regressing over 10%.”
Acquisitions: the jury is still out…
“It remains to be seen whether Microsoft will be able to leverage the $26.2B purchase of LinkedIn to benefit its core productivity business, which includes its Office suite and Windows products.”
And whats with the ‘More personal computing’ division…
“The bottom line isn’t all that attractive: while the numbers for Microsoft’s fiscal Q4 could be good, investors need to lower their future expectations since potential cost cutting moves are finite.”
But is Cloud Computing the rainmaker…
“Though Microsoft is still playing catch up to market leader Amazon (NASDAQ:AMZN), with Azure bringing in an estimated 600M quarterly compared to Amazon Web Services’ $2.5B, the importance of cloud computing in general is growing, and Microsoft is positioned to reap a good part of the benefits.”
Please find a chart below depicting Microsoft’s stock in 2016 and a chart of previous earnings.
Here’s what we think…
“It would be reasonable to expect Microsoft to resume EPS and revenue growth after a period of adaptation to its changing business environment. After a rough, stagnant patch, we believe it will break through and resume revenue and EPS growth of 5-7% percent a year. We anticipate the share price will likely follow.”
For more info and data on Microsoft financials see below:
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More