Microsoft Delivers, Big Time
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There’s nothing new about the touting of Microsoft (NASDAQ: MSFT), last week’s article following up on the patent deal with AOL was the latest in a string of write-ups discussing the woefully undervalued world leader in all things software.
Now, let’s address something right out of the gate – Microsoft haters (and you know who you are) will quickly point out that last evening’s earnings announcement fell shy of the same period in 2011, $0.60 vs. $0.61 (diluted). But before the naysayers get too excited about the “shortcoming,” a quick peek at the recently released 10-Q is in order – particularly the “Other Income (expense)” line item. For 2012 the company took a small hit of $11 million – a drop in the bucket for a company generating over $17.4 billion in revenue for the quarter. What’s interesting is the same period last year shows a $316 million one-time increase. Hmmm.
After doing some quick, rough and tumble math we find that once those extraordinary items are removed Microsoft actually generated an additional $200 million (give or take) in net income this quarter vs. last year's quarter. Naturally this pumps up the increase for the 9-month periods as well. What’s it all mean? As good as Microsoft’s numbers were - beating expectations of $17.18 billion in revenues and $0.58 in earnings per share – the results were actually even better than advertised. Microsoft investors should be rubbing their hands together gleefully right about now, and the company's just getting started.
Growth in Business Spending
What is every bit as exciting as the results themselves is the reason behind them – at least in large part. According to management, better than expected software sales to businesses was one of the primary catalysts. That little statement right there has far-reaching implications – and most all of them are good – not only for the IT industry, but any that rely on businesses loosening their pocketbooks.
Now let’s add in a few other tidbits that should have current Microsoft shareholders adding to their positions. The purchase of the 800 or so AOL patents will open the door to a world of new and/or improved opportunities for the company. Forays into Cloud technologies – there’s that business spending again – the pending rollout of Windows 8 and the as yet to take off Mango OS partnership with Nokia are but a few goodies on the Microsoft horizon.
Ah, but new investors have missed the boat with Microsoft up over 5% for the day, right? Believe it or not - and this is but one of the reasons Microsoft has been such an easy investment decision for so long now – even with the increase in share price the company easily remains one of the best values in the industry. IBM – another solid investment option by the way – is considerably more expensive by almost any measure. Another is SAP (NYSE: SAP) – currently trading about 45% higher on an earnings basis, and is more expensive from a price to book perspective as well.
And let’s not forget the nearly 2½% dividend yield too. This is one that was painfully easy to see coming, and don’t for a second think Microsoft is done. If you’re already long congrats – give yourself a well-deserved pat on the back - and now go add to your position. If you’ve waited fret not, Microsoft remains one of the best investment options in any industry.
Motley Fool newsletter services recommend Microsoft. The Motley Fool owns shares of Microsoft. timbrugger has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.