“Software giant’s fiscal fourth-quarter profit with a $60 billion year fell short of analyst expectations.”
New York — Microsoft Corp. the world’s largest software maker, on Thursday reported its fiscal fourth-quarter profit jumps to 42% to $4.3 billion, or 46 cents a share, aided by strong sales of its Office and Windows software, but the company missed Wall Street’s expectations by a penny per share.
“With uncertainty rocking at best over Yahoo Inc. search deal, Microsoft Corp. intends to invest hundreds of millions of dollars more than expected in the next year to whip its unprofitable online operations into shape.”
The software giant also failed expectations for the current quarter. Shares of Microsoft Corp. dropped about 7.5% Friday morning to $25.46 in after-hours trading after the software giant posted a fiscal fourth-quarter profit that fell short of Wall Street’s estimates as it forecast lower-than-expected revenue for the following quarter.
“Analysts, though, doubted how long Wall Street can wait to see those bets pay off.”
For the fiscal year that ended June 30, Microsoft brought in revenues of $60.42 billion and posted income of $22.49 billion, or $1.87 per share. That represents growth of 18% in revenues from fiscal 2007, 21% growth in earnings, and 32% growth in per-share earnings.
In the similar quarter a year-ago, Microsoft reported earnings of $3.0 billion, or 31 cents per share, but the comparison is not completely fair.
The disappointment did not end there, however.
But due to weakness in the online business, which makes most of its money from Web advertising, The Company said fourth-quarter income came in at $5.68 billion, a 42% gain, with earnings of $0.46 per share – 48% growth year over year. Still, Wall Street had been expecting earnings of a penny more per share, according to Reuters Estimates.
“Generating 60 billion dollars in annual revenue is an outstanding accomplishment,” Microsoft chief operating officer Kevin Turner said in a statement.
Revenue amplified 18% to $15.8 billion from $13.4 billion last year, just ahead of Wall Street’s average forecast of $15.7 billion, according to a Thomson Financial survey. The revenue rise would have been 14 percent if not for weakness in the dollar.
“Those are pretty good figures for a company of our size, in what many companies are finding challenging conditions,” Microsoft’s chief financial officer, Chris Liddell, said in an interview.
Sid Parakh, an analyst for McAdams Wright Ragen, was not buying it.
“The bottom line was disappointing,” he said in an interview. “Across the board, they are investing more in growth, which is hurting the bottom line. That has been a concern about Microsoft that investors have felt for a long time.”
Additionally, Microsoft executives forecasted next fiscal year’s earnings in the range of $26.3 billion to $26.9 billion, and $2.12 to $2.18 per share.
That may be part of what gave investors heartburn. Last quarter, the company had provided far rosier guidance — with income in the range of $26.7 billion to $27.4 billion, and earnings of $2.13 to $2.19 per share.
“The outlook for fiscal year 2009 is positive given the breadth of our impressive technology portfolio and the expanding collection of online services we are bringing to market,” Turner said.
The company credited the results to demand across its product line, including its offerings for videogame consoles and business computers.
Strong PC sales helped bolster Office and Windows results. Liddell said Microsoft sold more than 40 million Vista licenses in the quarter, surpassing 180 million since January 2007.
The unit responsible for Xbox 360 lost money in the quarter but ended the year in the black, a milestone analyst’s have tracked for two years.
Liddell told analysts the company would invest hundreds of millions of dollars more than expected in the online business next year.
“Looking forward, despite difficult economic conditions, we will build upon the momentum exiting fiscal year 2008.” “This is the area where we are seeing direct impact from the economic slowdown,” Liddell said.
He also forecast revenue growth for the unit would slow to between 7 percent and 11 percent in the quarter, and 18 to 20 percent for the full year, citing the tough economy.
Again, Parakh was skeptical.
“We all know it is much more than the economy,” Parakh said. Advertisers are waiting to see whether Microsoft and Yahoo will come together before spending their budgets with Microsoft, he said, and employees are distracted, too.
Walter Pritchard, an analyst for Cowen and Co., said Microsoft was stretching the definition of long-term investing by offering so few returns after so many years of spending.
Microsoft’s online business, which has come under renewed scrutiny from Wall Street since the software maker walked away from its bid to buy Yahoo in May, lost $488 million in the quarter, more than double its year-ago loss.
The triple-whammy sent the company’s stock slipping, down $1.55 or 5.63 percent in early after-hours trading.
“Clearly, we are disappointed that our strong financial results are not reflected in our stock price,” Liddell told financial analysts during the company’s earnings conference call. “The 18 percent revenue growth rate represents our fastest growth in over a decade and we are confident we can continue to produce double-digit growth.”
The solid earnings results came in the wake of Microsoft’s failed effort to buy struggling Internet pioneer Yahoo to better fight arch rival Google for market share in online advertising and search.
Microsoft remains entangled in an Internet industry drama as billionaire corporate raider Carl Icahn tries to replace Yahoo’s board of directors with a slate inclined to a tie-up with the software giant.
On the conference call after the earnings were reported, Liddell reiterated that they are still interested in purchasing the Yahoo search engine, and that the offer that Microsoft has on the table, “We believe is a compelling one.”
However, one analyst is skeptical. Trip Chowdhry, senior analyst for Global Equities Research does not think that Microsoft’s idea of purchasing Yahoo’s search engine is realistic. “It is like someone going to General Motors and saying I will purchase your engine division,” he said.
Chowdhry also thinks that the deal would not go through because it would face “immense scrutiny from Department of Justice” on the antitrust front.
Meanwhile, Microsoft execs are preparing for next Thursday’s annual Financial Analysts Meeting, where the company traditionally lays out its business, technology and product plans to the investor community.