Microsoft Corporation (MSFT) Offers Greater Earnings Transparency

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Microsoft Corporation (NASDAQ:MSFT) revealed more details on the changes to its earnings reporting structure last week. Overall, analysts generally see these changes as a positive, but reservations about the company as a whole still remain. Deutsche Bank analysts continue to rate Microsoft as Hold with a $32 per share price target, while analysts at Morgan Stanley maintain their Equal-Weight rating on the company.

Microsoft Corporation (MSFT) Offers Greater Earnings Transparency

Microsoft’s new disclosures are a plus

Deutsche Bank analysts Nandan Amladi, Imtiaz Koujalgi and Jobin Mathew say the new reporting structure with the new key performance indicators provided by Microsoft Corporation (NASDAQ:MSFT) will enable investors to better understand the company’s financial situation. Specifically, they said it highlights the company’s exposure to consumers compared to enterprises as well as shows how Microsoft is progressing in the shift to Cloud services.

Microsoft reveals key performance indicators

Among the indicators the analysts found especially relevant are revenue growth on Microsoft’s Commercial Cloud business and also seat growth of Office 365 Commercial and Office 365 Home Premium. They said these indicators have the potential to offset some of the negative sentiment surrounding Microsoft right now.

They note that the new structure combines revenues from Microsoft’s Windows OEM and about 95 percent of MBD’s consumer transactional revenue in the Consumer and Devices license segment. The company is also offering more metrics to detail the growth of Windows through volume licensing and Windows Pro and non-Pro revenue growth.

Microsoft’s commercial cloud business doing well, but…


The analysts said the new structure has revealed that Microsoft Corporation (NASDAQ:MSFT)’s Commercial Cloud Business grew about 77 percent in the 2013 fiscal year. The Deutsche Bank analysts estimate that revenues from Azure were about $100 million in the fourth fiscal quarter of the year.

Morgan Stanley analysts Keith Weiss, Melissa Gorham and Jennifer Swanson Lowe agree that the new revelations about Microsoft’s growing cloud business are important. However, they said the large number of business transitions is giving them pause at the moment.

Microsoft faces increased execution risk

They note that as Microsoft Corporation (NASDAQ:MSFT) executes the transition to its new structure, the risk of execution is balanced with the potential reward of a number of possible catalysts. They say the potential catalysts include better PC growth, outperformance in devices and commercial licensing, increasing Cloud exposure and increasing dividends or share buybacks.


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