We are amazed at Microsoft’s (MSFT) mediocre performance as a stock since the dot-com implosion. In December 1999, Microsoft’s stock price reached a pre-split high of nearly $120 per share. Microsoft’s fiscal year begins on July 1 and ends on June 30 and as such it was in FY 2000 at that time. That price at the time represented a PE of over 70 times earnings. Since then its split adjusted stock price has declined by 50% and even its dividend payments since 2003 have not been enough to forestall a negative total return of 35% on its stock since its December 1999 all-time high. This was achieved in spite of the fact that Microsoft not only avoided the worst of the dot-com implosion, but it grew its adjusted earnings nearly fourfold since the end of its 1999 fiscal year. The company’s stock is so cheap on a PE basis, it is trading at 10X adjusted FY 2013 earnings and now pays a $.20 quarterly dividend (2.66% yield).

Microsoft’s recent performance has been a mixed bag of success, weakness and ugly, outright failure. Good news has come primarily from its Server and Tools Division and its Microsoft Business Division. Weakness has come from its Windows and Windows Live Division and Entertainment and Devices Division. And outright failure has come from its Online Services business, most notably the $6.2B disasterpiece known as aQuantive.

The Good:

Microsoft Server and Tools grew revenue by 12.55% for Q4 2012 and 12% for the year. Its Product revenue grew by 12% ($431M) due to growth in SQL Server and System Center and represented nearly 76% of the division’s attributed growth. Enterprise Services revenue grew by 15% ($137M) due to growth in both Premier product support and consulting services and this represented 24% of the division’s attributed growth. Divisional operating income grew by 24% in the fourth quarter and 18% for the year due to the increased revenue and positive operating leverage.

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