Microsoft slides after earnings fail to impress Wall Street (MSFT)

pulse

February 1, 2018 2:21 PM

Microsoft reported its second-quarter 2018 earnings on Wednesday after the bell that revealed a modest beat followed by a one-time tax hit of $13.8 billion.

Investors were concerned they did not see enough accelerated growth, and that profits would not be returned in the form of increased buybacks or dividends.

Shares of Microsoft slipped after the company reported quarterly profits that modestly beat expectations, but failed to enthuse investors.

Microsoft was down 1.45% at $93.63 in pre-market trading on Thursday.

Though Microsoft reported better-than-expected earnings of $0.96 a share on revenue of $28.92 billion, the company was also hit with a one-time charge of $13.8 billion due to the newly-passed tax law.

The "lack of accelerated capital return" and the newly guided corporate tax rate below 21% "may modestly disappoint," said RBC Analyst Ross MacMillan. He said that the technology company remains focused on reinvesting in growth rather than returning profits, in the form of a buyback or special dividend, to investors.

Yet revenues from Microsoft's Productivity and Business Processes segment, which includes Microsoft Office, the Office 365 cloud suite, and LinkedIn, grew 25% year-over-year and its Intelligent Cloud segment, which includes its Azure platform, grew 15% during the same period. Revenue from its personal computing segment posted modest growth of 2%.

Still, MacMillan raised his price target to $105, up 12% from its current price.

He believes that Microsoft could see more upside with an acceleration of Azure and LinkedIn services and offerings, the wider adoption of the Azure Stack, Microsoft's hybrid cloud platform, and a markedly improved commercial PC market, as well as improved Windows performance.

Microsoft was trading up 9.4% for the year.