Company Update (NASDAQ:MSFT): Microsoft Corporation Announces Q3 2016 Earnings

Microsoft Corporation (NASDAQ:MSFT) announced the following results for the quarter ended March 31, 2016:

  • Revenue was $20.5 billion GAAP, and $22.1 billion non-GAAP
  • Operating income was $5.3 billion GAAP, and $6.8 billion non-GAAP
  • Net income was $3.8 billion GAAP, and $5.0 billion non-GAAP
  • Earnings per share was $0.47 GAAP, and $0.62 non-GAAP

“Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” said Satya Nadella, chief executive officer at Microsoft. “As these organizations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.”

The following table reconciles our financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. Microsoft has provided this non-GAAP financial information to aid investors in better understanding the company’s performance. All growth comparisons relate to the corresponding period in the last fiscal year.

During the quarter, Microsoft returned $6.4 billion to shareholders in the form of share repurchases and dividends.

This quarter’s income tax expense included a catch-up adjustment to account for an expected increase in the full year effective tax rate primarily due to the changing mix of revenue across geographies, as well as between cloud services and software licensing. As such, the GAAP and non-GAAP tax rates were 25% and 24%, respectively.

“Our continued operational and financial discipline drove solid results this quarter,” said Amy Hood, executive vice president and chief financial officer at Microsoft. “We remain focused on investing in our strategic priorities to drive long-term growth.”

Revenue in Productivity and Business Processes grew 1% (up 6% in constant currency) to $6.5 billion, with the following business highlights:

  • Office commercial products and cloud services revenue grew 7% in constant currency driven by Office 365 revenue growth of 63% in constant currency
  • Office consumer products and cloud services revenue grew 6% in constant currency with Office 365 consumer subscribers increasing to 22.2 million
  • Dynamics products and cloud services revenue grew 9% in constant currency with Dynamics CRM Online seat adds more than doubling year-over-year

Revenue in Intelligent Cloud grew 3% (up 8% in constant currency) to $6.1 billion, with the following business highlights:

  • Server products and cloud services revenue increased 5% in constant currency driven by double-digit annuity revenue growth
  • Azure revenue grew 120% in constant currency with usage of Azure compute and Azure SQL database more than doubling year-over-year
  • Enterprise Mobility customers more than doubled year-over-year to over 27,000, and the installed base grew nearly 4x year-over-year

Revenue in More Personal Computing grew 1% (up 3% in constant currency) to $9.5 billion, with the following business highlights:

  • Windows OEM revenue declined 2% in constant currency, outperforming the PC market, driven by higher consumer premium device mix
  • Surface revenue increased 61% in constant currency driven by Surface Pro 4 and Surface Book
  • Phone revenue declined 46% in constant currency
  • Xbox Live monthly active users grew 26% year-over-year to 46 million
  • Search advertising revenue excluding traffic acquisition costs grew 18% in constant currency with continued benefit from Windows 10 usage

“Digital transformation is the number one priority on our customers’ agenda. Companies from large established businesses to emerging start-ups are turning to our cloud solutions to help them move faster and generate new revenue,” said Kevin Turner, chief operating officer at Microsoft.

Business Outlook

Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast. (Original Source)

Shares of Microsoft are down nearly 3% to $53.90 in after-hours trading. MSFT has a 1-year high of $56.85 and a 1-year low of $39.72. The stock’s 50-day moving average is $54.15 and its 200-day moving average is $52.58.

On the ratings front, Microsoft has been the subject of a number of recent research reports. In a report released today, Morgan Stanley analyst Keith Weiss reiterated a Buy rating on MSFT, with a price target of $66, which represents a potential upside of 18.3% from where the stock is currently trading. Separately, on the same day, Pacific Crest’s Brendan Barnicle assigned a Buy rating to the stock and has a price target of $65.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Keith Weiss and Brendan Barnicle have a total average return of 14.8% and 13.3% respectively. Weiss has a success rate of 63.5% and is ranked #195 out of 3827 analysts, while Barnicle has a success rate of 73.3% and is ranked #146.

The street is mostly Bullish on MSFT stock. Out of 22 analysts who cover the stock, 15 suggest a Buy rating , 5 suggest a Hold and 2 recommend to Sell the stock. The 12-month average price target assigned to the stock is $58.28, which represents a slight upside potential from current levels.


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