Must-know: Microsoft’s 4Q14 earnings review



Microsoft, a top global software company

Microsoft (MSFT) is one of the leading diversified global software companies with more than $350 billion market capitalization. According to Statista, Microsoft stood in the seventh position among the top 100 largest companies in the world by market value in 2013. Apple (AAPL) was the leader and IBM (IBM) also made to the top ten.

As a leader in the software and technology sector, Microsoft’s activities are closely monitored—be it a product launch or earning transcripts. Any positive news about the company is likely to benefit iShares U.S. Technology ETF (IYW) and Technology Select Sector SPDR Fund (XLK), as they hold significant exposure to Microsoft.

The above chart shows the contributions of various segments toward Microsoft’s consolidated revenues. Licensing is major part of Microsoft’s revenues, followed by computing and gaming hardware.

Earnings review of 4Q14 

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On July 22, 2014, Microsoft reported its fourth quarter and fiscal 2014 earnings. It reported revenues of $23.4 billion for the fourth quarter and $86.83 billion for the full year 2014. For the quarter and year-on-year basis, revenues increased 17% and 10.3%, respectively, in 2014. Earnings per share was at $0.55, lower than the consensus earnings estimate of $0.65.

Segment performances

Commercial licensing revenue increased by 6% to $49.6 billion because of increased growth in cloud services, Windows volume licensing, and server products including SQL Server and System Center.

Revenue from the devices and consumer segment increased by 17% to $37.8 billion in 2014. Of the $37.8 billion, Nokia contributed $2 billion. Xbox platform, Surface, and Windows Phone revenues contributed to the growth of this segment. Net income margins declined to 25.4% in 2014 compared to 28% in 2013.

Areas and products showing rapid growth

According to Microsoft, commercial cloud revenues reported 147% growth on a year-on-year basis. For Bing search engine, it posted 40% year-on-year growth in 2014 and expects to break even in 2016. Office 365 added 1 million subscribers, pushing the total count including other subscribers to 5.6 million subscribers. “Computing and gaming hardware” reported 23% growth, and Windows OEM Pro, 11%.

In July 2014, Microsoft announced its decision to close Xbox Entertainment Studios, the producer of original video content. This decision is part of the current restructuring, and Microsoft plans to focus on strengthening its core video game business.


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