Microsoft reported its first quarter earnings today. The earnings report can be viewed at the Microsoft website. Let us take a quick look at the earnings to see how the MSFT prospects look like.
The top line revenue increased by 11% this quarter compared to the previous years quarter. The break down in revenue in different divisions is as follows. Out of the one billion increase in revenue, XBox contributed about 400 million. Since XBox is selling at a loss, the top line growth in core businesses was 6.9%. The growth in each of the sub groups was as follows. Client grew by 2.7%, server grew by 17.5%, Office grew by 4.3%. The Online business saw a decline with more losses in the pipeline for the rest of the year.
Since XBox doesnt generate profits, let us look at the rest of the balance sheet to see how the operating margin looks like for this quarter. The operating income margin was still decent without significant deterioration and comparable to the FY06 Q1 levels. The R&D costs and sales, marketing costs increased by 17% and 12% respectively. If the same number of shares were outstanding as last year, the earnings would have come in at 32 cents a share. The share buy backs helped boost the earnings by three cents to 45 cents.
Surprisingly, the cash flow from operations declined year over year. The decline is about 6-7% compared to the same quarter from the prior year. This is despite the decrease in stock option expense and increase in receivables. The capital expenditures increased by 93% year over year. It looks as though the cash flows for the entire year will probably decline compared to the same period last year.
Despite the lackluster balance sheet, the stock will probably stabilize around the current price for FY07. The upside for Microsoft stock ( if any ) is going to be in fiscal FY08 when revenues from vista and office start kicking in and XBox losses decline further or make a slight profit.