Must Buy Before Earnings

Brahamjit is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The earnings season is here again. The season when companies check their books and disclose their intrinsic details to the common man. There are three things that seem to effect the share price post earnings the most: the revenues, the EPS, and the guidance. As for the past, a company has to beat expectations on at least two of these three parameters to keep their share prices in check, and has to beat on all three to increase their prices. With the earnings of Microsoft (NASDAQ: MSFT) on the horizon, the question remains if Microsoft will be able to beat expectations.

To answer that we will discuss two important factors: the product before earnings, and the product after earnings.

The Past:

Microsoft was having a fairly good year until the launch of its flagship product Window 8. Investors were positive about the success of the enterprise and the smartphone market. Then the launch happened, and so began the worries for MSFT. While Window 8 happened to be the best operating system from Microsoft to date, it failed to gain as much traction as investors believed it would. Even when Window 8 has sold 40 million licenses in merely 1 month since its launch according to one of Microsoft’s executive, the stock price has taken a fall of around 8% since the launch, blaming the slow traction. Window 7, which has been dubbed by many as the best OS, also reached the 40 million mark after the first month, even when it was launched after a disastrous Vista. Keeping that in mind, I believe that Window 8 has actually got very good traction considering that it was launched after a very stable Window 7.

The Future:

Microsoft has become an expert salesman regarding its new operating system. It has been signing deals, nagging OEM’s and offering its products in different shapes and sizes with different OEM’s to attract customers. According to a recent three-year Joint Enterprise Licensing Agreement, Microsoft will provide Window 8 to nearly 75% of the personnel at the U.S. Department of Defense.

As Window 8 tries to bring the best of both worlds with its ability of being used as a laptop and a tablet, it has been heavily eyed enterprises. According to research by IYogi insights of 175 small businesses, 38% of the respondents using Apple (NASDAQ: AAPL) iPads are considering migrating to Window 8 considering their dual usability. The main advantage that Microsoft provides with its Window 8 platform is that the business needs will be integrated into a single cloud, which will be accessible by different devices on the same platform. It also scores points over Apple and Google's (NASDAQ: GOOG) Android tablets with its legacy apps such as Word, Excel, and PowerPoint, which enterprises need to use in daily processes.

Furthermore, I believe that the growing divide between Google and Apple as their litigations continue is only going to help Microsoft in the long run. The litigation result in which Samsung had to pay Apple brought a lot of bad press for Apple. Google, on the other hand, is also attracting a lot of negative views as it is trying to expand almost everywhere on the web with its acquisitions like Zagat and Frommmer, which pose direct threats to YELP and TripAdvisor, respectively. I believe that Microsoft can benefit from these endless fights as the dutch proverb says that "When two dogs fight over a bone, a third one carries it away."

With the low expectations set by the market, Microsoft can easily provide a beat on both EPS and revenues. Higher guidance might also be in place with the multi-million licensing agreements and the increased scope in the enterprise sector. With the earnings looking to provide the much needed push, there is a good buying opportunity in place for this stock.

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