Microsoft, Baidu pop; Visa, Pandora drop after hours

Today 6:40 PM ET (MarketWatch)

By Wallace Witkowski, MarketWatch

SAN FRANCISCO (MarketWatch) -- Microsoft Corp. shares rose in the extended session Thursday after the software giant's quarterly profit declined but topped Wall Street estimates.

Shares of Microsoft (MSFT) rose 3% to $41.06 on very heavy volume after the Redmond, Wash.-based company reported fiscal third-quarter earnings of 68 cents a share on revenue of $20.4 billion.

Analysts surveyed by FactSet had forecast 63 cents a share on revenue of $20.39 billion.

Follow MarketWatch's live blog of Microsoft's conference call.

Shares of Dow component Visa Inc. (V) shares fell 3.9% to $201.26 on moderate volume after fiscal second-quarter revenue fell short of Wall Street estimates. Visa reported quarterly earnings of $2.20 a share on revenue of $3.16 billion. Analysts expected $2.18 a share on revenue of $3.19 billion.

U.S. shares of Baidu Inc. (BIDU) surged 5.5% to $168.56 on heavy volume after first-quarter earnings topped forecasts.

Amazon.com Inc. (AMZN) shares rose 0.2% to $337.73 on heavy volume after the online retailer posted quarterly revenue that topped Wall Street estimates.

Follow Amazon's conference call on MarketWatch's live blog.

Starbucks Corp. (SBUX) shares rose 1.6% to $72.20 on moderate volume after the coffee chain reported fiscal second-quarter earnings of 56 cents a share on revenue of $3.87 billion. Analysts expected 56 cents a share on revenue of $3.96 billion.

Pandora Media Inc. (P) shares dropped 4.6% to $26.90 on heavy volume even after the Internet radio provider posted better first-quarter numbers than Wall Street expected. Their second-quarter outlook may have factored into the share-price drop as Pandora said it expects to break even to 3 cents a share in adjusted profit on revenue of $213 million to $218 million. Analysts expect 5 cents a share on revenue of $218.3 million.

The company raised its outlook for the year to earnings between 14 cents and 18 cents a share on revenue of $880 million to $900 million. Analysts are forecasting 16 cents a share on revenue of $895.7 million.

SunPower Corp. (SPWR) jumped 4.9% to $33.60 on moderate volume.after the solar-power developer scored a big earnings beat.

SunPower reported adjusted first-quarter earnings of 49 cents a share on adjusted revenue of $683.7 million. Analysts estimated 33 cents a share on revenue of $679.5 million.

Shares of Hanesbrands Inc. (HBI) rose 3.7% to $78.25 after adjusted first-quarter earnings topped expectations and the company boosted its profit outlook for the year.

Broadcom Inc. (BRCM) shares declined 3.2% to $30.15 after first-quarter earnings.

Shares of Under Armour Inc. (UA) rose 2.8% to $51.84 on moderate volume after S&P Dow Jones Indices said the company would join the S&P 500 Index on April 30.

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-Wallace Witkowski; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires
April 24, 2014 18:40 ET (22:40 GMT)
Copyright (c) 2014 Dow Jones & Company, Inc.

The Real Secret To Microsoft's Success

By Greg McFarlane on March 20, 2014   A A A

Filed Under: Bill Gates, Business History, Profitability, Sector - Technology, Tech Industry

Tickers in this Article: MSFT, AAPL, GOOG, IBM

For people of a certain persuasion, it’s fun to make fun of Microsoft (Nasdaq:MSFT). It's outdated and occasionally bloated software. An operating system version so despised that most users refused to upgrade from its predecessor and instead waited for its replacement. A browser that once held 95% of world market share, but is now number one in only Japan, South Korea, Gabon and Greenland. And mobile phones that barely register in a universe dominated by iPhone and Android.

Many (alright, some) of us are old enough to remember when Microsoft was the very definition of novel, its youthful founders and their unorthodox culture flying in the face of a formal, understated business world that had limited use for, or knowledge of, computers. Today, Microsoft is a grey-flannel pillar of the Dow, and that’s a welcome occurrence. The alternative would have been for the brash software upstart to be of no consequence today.

Still, at times it seems the consensus sentiment about Microsoft prompts questions such as “How on Earth do they make so much money?” After all, Microsoft isn’t the most innovative company in the world, nor the most limber. However, critics seem to forget something: a) Microsoft is the world’s largest software maker, and b) people have great utility for software.

In a sense, Microsoft is much like Jay Leno and Nickelback in that the level of criticism directed at its object is directly proportional to its success and pervasiveness. Microsoft revenue topped $78 billion last year. With a 28% profit margin, which is considerably larger than that of either Apple (Nasdaq:AAPL) or Google (Nasdaq:GOOG), two companies that popular opinion assumes have overtaken Microsoft.

That popular opinion derives from a false assumption: that a new product line with frequent updates is the surest path to success in the technology sector. Not true. Take Surface, Redmond’s answer to Apple’s iPad. It isn’t the kind of product that makes nor breaks a company with the power and magnitude of Microsoft. Rather, it’s a way to stay relevant in the consumer electronics market – of course, the idea is for Surface to create enough profit to justify the expenses behind it, but a couple million satisfied Surface owners have only a minimal effect on Microsoft’s net profit numbers. The same goes for the formidable Xbox, whose sexiness as a gaming console vastly outweighs its contributions to Microsoft’s overall financial picture.

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The truth is somewhat more pedestrian. Perhaps it’s because Microsoft is so ubiquitous, a constant reminder in the daily lives of those who use its products. Every time you turn your computer on, Microsoft’s logo is staring at you, even if you’re a Mac or Linux user who nevertheless uses Microsoft’s Office suite. Shouldn’t a company with so wide and deep a footprint make it its business to endlessly delight and fascinate us, with a youthful exuberance and a penchant for self-promotion? You know, like Google does?

The fact is, 39 years after its incorporation, Microsoft is as staid and disciplined as IBM (NYSE:IBM), ITT (NYSE:ITT), Litton Industries and the other companies that rounded out the upper reaches of the Fortune 500 back in 1975. The software giant is primarily in the business of making money, which sounds tautological at first read, but really isn’t. Microsoft is no longer in the raw experimentation stage common to young and growing companies. Rather, its modus operandi is to create profitability streams, then maintain and expand them. Primary among those are two divisions and two divisions alone: Business and Windows. Together, they were responsible for 96% of Microsoft’s profits last quarter. (The remaining divisions are Server & Tools, Online Services and Entertainment & Devices.) Each of the divisions responsible for the overwhelming bulk of Microsoft’s profit deserves its own summary.

The name of Microsoft’s “Business Division” may sound unhelpfully generic, but it refers to the part of the operations that’s responsible for creating the stupendously profitable Office. The suite started as an adjunct, a method for showcasing Microsoft’s revolutionary operating system. But since Office’s 1990 debut, the applications that comprise it have become just about mandatory for anyone wanting to conduct business. Over a billion people now use Office, to the point where Word and Excel are practically synonymous with word processing and spreadsheets, respectively. Multiply that user base by $140 per license for the stripped-down Home & Student version of Office, a product whose marginal cost is close to zero, and it’s easy to see why Microsoft does everything in its power to maintain Office’s profitability (and why competitors from OpenOffice to Google Docs want nothing more than to chip away at Office’s 90% market share.)

The Business Division’s only serious competitor for dominance at Microsoft is the company’s Windows Division, whose latest contribution to the marketplace is Windows 8. Coincidentally, Windows’ share of the worldwide operating system market is as large as Office’s share of productivity suites is – right around 90%. Almost half of those users use Windows 7, and about a third are one generation behind at Windows XP. Windows 8 retails for $120, with marginal costs comparable to if not considerably less than those for Office.

The Bottom Line

All-in-one entertainment systems (Xbox One) and free audio- and video-conferencing around the world (Skype) may be exciting, the kind of things that make life in the 21st century more enjoyable, but their impact on Microsoft’s income are minimal. Instead, the company’s secret to staggering riches lies in the daily business of allowing users to create and manipulate documents; and providing the software that performs a computer’s most important function – permitting data to make it from your computer’s hardware components to its display. It isn’t alluring, but it pays the bills ... to an extent few companies in history can match.

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by

Greg McFarlane

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Greg McFarlane is the co-founder of Control Your Cash, a personal finance website for people who want "results, not coddling." He's also the author of its companion book, Control Your Cash: Making Money Make Sense, a full personal finance primer in one volume. Greg has been with Investopedia for three years and also writes for several tourism and general interest magazines. Originally from Vancouver, Greg splits his time among Las Vegas, Costa Rica and Maui with his wife and three cats. The opinions expressed are his own.