This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Microsoft's 'Blowout Quarter' Proved Nothing

NEW YORK (TheStreet) -- Some sense of relief among Microsoft (MSFT) investors rose when embattled former boss Steve Ballmer announced he was retiring. Given that Microsoft had lost close to half of its value under Ballmer, there was sense that, "The next guys can't be worse."

While it's still too early to think about the approval rating of new CEO Satya Nadella, Microsoft's fiscal third-quarter results show that there are no quick fixes in getting this once high-flyer back to growth.

(The Street can cheer the company's revenue and earnings beat all it wants.)

From my vantage point, Microsoft jumped over a low bar. But is that enough to bet on the stock?

Thursday, the software giant posted revenue of $20.4 billion, "flat" according to some analysts. In actual performance, last year's business of $20.49 billion almost mirrors the year-over-year decline of less than half of 1%.

This tells me right away how badly the Street wants to give Nadella the benefit of the doubt. Had it been Ballmer on the call, whom the Street cared very little for, the headlines would have been different.

It's nonetheless encouraging that Microsoft posted revenue gains from its dominant Windows franchise, which many had feared was in decline. And when you factor the improvements in cloud computing services like Azure, it does show that Microsoft's transition from a PC-dependent business is taking shape.

Revenue from devices and consumer products rose 12% to $8.30 billion. Microsoft, which is in a neck-and-neck battle with Sony (SNE), sold more Xbox One game consoles than expected. The company also benefited from consumers upgrading their systems from Windows XP to Windows 8.

In my opinion that's as far as the good news went. Although revenue from various segments gained $1.7 billion, this was negated by a $1.8 billion decline in revenue from upgrade offers. In all, the company's profits declined 5.5% to $5.66 million, or 68 cents per share. That's down year-over-year from $6.06 billion, or 72 cents per share.

Granted, the results beat analyst expectations. Again, how far Microsoft has fallen. On the conference call, Nadella said all of the right things, including furthering plans to reorganize the structure of his leadership. I will credit the company's board for finally realizing that a change was necessary. But I wouldn't get too carried away here with the company's new direction. It's still unclear.

Although products like Office, Windows and the Server business remain strong performers, going forward, I'm more interested to know how Nadella plans to to attack new growth areas like the Cloud, where  Amazon (AMZN) and Google (GOOG) (among others) have dominant market positions. And with Apple (AAPL) gaining more traction in the enterprise, Microsoft need to quickly supplement what Office and Windows currently produce.

If Nadella can achieve gains in these areas, while reviving underutilized/poorly-marketed assets like Skype, only then will a "new Microsoft" emerge. With more than $80 billion in cash on the balance sheet, Microsoft is not going to die tomorrow. Nadella will be given more than enough time to execute this turnaround. But from the standpoint of a "blowout quarter," this wasn't it.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,067.56 -30.89 -0.18%
S&P 500 2,002.28 -1.09 -0.05%
NASDAQ 4,598.1880 +17.9170 0.39%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs