Microsoft shares rally as earnings top forecast
SAN FRANCISCO — Microsoft wrapped its fiscal year with a financial performance anchored to its rebirth as a cloud-first company while continuing to grapple with a stagnant PC market and withering phone business.
Profit returned after a year ago loss, and adjusted earnings per share — stripping out big restructuring charges — topped estimates.
Microsoft (MSFT) shares, which closed 1% down Tuesday at $53.39, were buoyed by the news. The stock jumped 4% in after-hours trading.
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"This is a nice strong end to the fiscal year for Microsoft, which is in a decade-long pivot to change its business," says Colin Gillis, analyst with BGC Partners. "The bulls will have plenty to point to, namely the growth in Microsoft's cloud business, and so will the bears with the continuing PC headwinds and phone business issues."
Total revenue in the fiscal fourth quarter fell 7% from a year ago, to $20.6 billion.
Adjusted for Windows 10 revenue deferrals, Microsoft's revenue was $22.6 billion, up 2%, and adjusted earnings per share rose to 69 cents. The Redmond, Wash-based company was expected to report adjusted earnings per share of 58 cents on $22.1 billion in revenue, according to analyst estimates provided by S&P Global Market Intelligence.
The biggest setback was predictable. Microsoft reported a 4% decline in the segment that includes personal computing to $8.9 billion, anchored to a 71% decline in phone revenue as the company continues to shed its failed Nokia acquisition and moves away from efforts to becoming a player in the smartphone hardware space.
During the fiscal fourth quarter, Microsoft reported Nokia-related restructuring and related impairment expenses of $1.1 billion. The company recorded $630 million of asset impairment charges and $480 million of restructuring charges.
Bright spots were also familiar, namely a 7% boost to its cloud business, including a 102% growth in Microsoft's Azure cloud revenue.
“This past year was pivotal in both our own transformation and in partnering with our customers who are navigating their own digital transformations,” Microsoft CEO Satya Nadella said in a statement. “The Microsoft Cloud is seeing significant customer momentum and we’re well positioned to reach new opportunities in the year ahead.”
Under Nadella, who took over from Steve Ballmer in February 2014, Microsoft has pivoted away from its software licensing model and towards a cloud- and mobile-first strategy that has sent the stock up 30% in two years to $53.
Looking ahead to Microsoft's FY 2017, all eyes are on how Nadella and his leadership team will integrate a proposed $26 billion purchase of LinkedIn, which has the potential to turn Microsoft into a software-as-a-service competitor to the likes of Salesforce, Oracle and SAP.
"Microsoft essentially topped every sales metric expectation this quarter and has positioned itself well for growth in fiscal 2017 (which began July 1), with significant investments in data centers and analytics," says Josh Olson of Edward Jones Research.
"As expected, gross profits eroded slightly as the company continues to invest in hardware devices such as Surface Pro and the data centers that power its cloud business," he says. "But under Nadella's leadership, we believe Microsoft continues to distinguish itself as a leader in the transition to the next generation of computing."
Follow USA TODAY reporter Marco della Cava on Twitter: @marcodellacava