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Microsoft 2012 1Q financial analysis

Microsoft 2012 1Q results remain to look a bit flat. While Revenue show growth from 16,4 bn.$. to 17,4 bn.$ or by +6% Net Income before Depreciation shows stable decrease: 2010Q1 – 6,1 bn.$. 2011Q1 – 6,0 bn.$ 2012Q1 – 5,9 bn.$. Which is not good as it shows that Microsoft golden ages are slowly coming into end giving ground to its main competitors Google and mainly Apple.

According to http://www.netmarketshare.com Windows share in desktop computers remain hard 92% and almost remain unchanged. But Desktop computers are losing ground to mobile technologies as Mobile device market is dubbing each year.

Microsoft mobile operating system share is just around 1% and no improvements here. Microsoft is also losing ground at browser competition to Google Chrome which increased it share from 12% to 19% while Microsoft explorer has lost its market share from 58% to 54%.

Income structure shows that companies main product Windows Revenue has increased from 4,4 bn.$ to 4,6 bn.$ (Δ+4%) while its Net Income has increased from 2,8 bn.$ to 3,0 bn.$ (Δ+7%). Main segment which worsened companies results is Entertainment segment which Revenue has decreased from 1,9 bn.$ to 1,6 bn.$ (Δ-16%) and this segment generated Net loss -0,2 bn.$. Another segment Online services has generated 0,5 bn.$ loss a bit less then previous year. Its Total revenue has basically not increased so Microsoft does not generated any visible competition in Google main field. In general companies results are average.

No major changes at Balance sheet since Q4. No major investments was made during Q1. Equity level stays at good 55% level and is slowly increasing because part of companies earned Net Income remains at the company. Due to that Equity has increased from 53,5 bn.$ at 2011Q1 to 68,6 bn.$, but this has decreased Return on Equity, since companies generated Net income is even slightly decreasing which has drooped to 31% but still remains quit good. Liquidity ratio remains good ~3 due to large Cash and short term investment reserve – 59 bn.$ (~1/2 of total asset) which has increased from ~50 bn.$ year ago. In general balance structure is acceptable.

Common Stocks 65,3 bn.$  8,401 bn. 7,77 $
+ Retained earnings 3,4 bn.$ + 0,40 $ 8,17 $
+ 1 year Net income before Depreciation 26,1 bn.$ + 3,11 $ 11,28 $

Companies share basic value is ~8,2$ (Δ+8%/7,6$ compared with Q4).  Current market price is ~32$  (unchanged). which shows that market is paying 23,8$ more or 7,7 years (7,9 years) of Net income before Depreciation earnings, which has improved a bit from 5,9 year at Q4, but remains a bit highly evaluated. Share profitability (Share market price/Net income before Depreciation) is 9,7(Δ+0,1%/9,6%) which is a bit better then average and has increased a little bit due to reduced share number.

Company announced that it will remain paying 0,2$/share a quarter dividend. Dividend yield is ~2,5% dividend yield which is a bit low. Dividend growth is not projected as companies generated profit is not growing and even decreasing a little bit.

Analysis source: Microsoft First Quarter 2012 Financial Results

Previous analysis: Microsoft 2011 4Q financial analysis

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8 Responses to Microsoft 2012 1Q financial analysis

  1. I enjoyed reading your analysis. The charts and graphs you made look very nice!

    With microsoft I think they will be around for a long time, but will become less and less relevant. They completely missed the boat with wireless and seem to lose money on everything they do except windows & related offerings. I think MSFT will still grow its dividend because they still have a low payout ratio of 29%.

    • Thank you. I hope to improve it in future a bit more.

      Well I have to agree on that, Microsoft pay 0,8$ out of earned 3,11 Net Income before depreciation so there is room for increase, they have ~60 bn.$ cash in reserve. But its more a strategic decision rather then economic so its hard to predict. As competition get more tough with Apple and Google draining cash reserves would not be the best idea also keeping in mind that Google has ~50 bn.$ Apple ~100 bn.$. One thing that could improve dividends is share repurchase, so basically yes it could be improved a little bit. Never the less if looking from only economical perspective dividends should not be increased when their earning are dropping. If you noticed MSFT has already approved that they will pay the same 0,2$/Q http://www.microsoft.com/en-us/news/press/2012/mar12/03-13DividendPR.aspx

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