Microsoft Earnings Can’t Overcome Investor Higher Expectations

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Microsoft Corp. (NASDAQ: MSFT) reported fiscal second-quarter 2018 results after markets closed Wednesday. The software behemoth reported diluted earnings per share (EPS) of $0.96 on revenues of $28.9 billion. In the same period last year the company reported EPS of $0.80 on revenues of $225.83 billion. The consensus estimates called for EPS of $0.86 on revenues of $28.39 billion.

On a GAAP basis, the company reported a net loss per share of $0.82 due to a net charge of $13.8 billion related to the new U.S. tax law.

Microsoft returned $5.0 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2018.

The company’s CFO, Amy Hood, said:

We delivered another strong quarter with commercial cloud revenue growing 56% year-over-year to $5.3 billion. Strong execution from our sales teams and partners is driving growth across our businesses.

Intelligent cloud revenue rose 15% and Windows OEM revenue rose 4% both nominally and in constant currency. The company now claims 29.2 million subscribers to its Office 365 Consumer subscription base. Revenue growth in the company’s Azure platform rose 98% year over year.

Microsoft did not offer guidance in its press release, but said that it would provide guidance during its conference call later this afternoon.

The consensus estimate for the company’s 2018 third fiscal quarter calls for EPS of $0.78 on revenues of $25.51 billion. For the full fiscal year ending in June 2018, EPS is forecast at $3.40 on revenues of $106.4 billion.

Revenue from sales of the company’s 2-in-1 Surface rose by 1% and search advertising revenue rose 15%, excluding traffic acquisition costs and driven by higher revenue per search and more searches.

LinkedIn contributed $1.3 billion to second-quarter revenue.

Shares traded down about 1.5% at $93.70 in after-hours trading. The stock closed at $95.01 in a 52-week range of $62.75 to 95.45. Prior to the earnings announcement the 12-month consensus price target on the stock was $98.55.