Microsoft's Q4 Financials: Modest Growth, Not Much Xbox

[Karloff]

Microsoft's Q4 Financials: Modest Growth, Not Much Xbox

It's a 10% revenue bump! Well, no, actually ...

Microsoft posted its Q4 financials, and for those of you wondering if it has enough cash in its pocket to buy lunch, the answer is yes. Revenue grew to $19.896 billion, representing a 10% increase over 2012, but there's a catch; not all of that revenue is real growth. Most of it relates to one-off special events - a deferral of cash earned in 2012 associated with the Windows Upgrade Offer, and a chunk of change that came with the Office Upgrade Offer - which means that, of that 10%, only 3% ($515 million) represents actual honest-to-Wall Street growth in its markets. As you might expect, its office and business segments were the ones bringing home the bacon, but entertainment did modestly well. Even including a slowing Xbox 360 market - wouldn't you know it, in the year Microsoft announced a new console, people stopped buying the old one - the entertainment division's revenue increased by 8% ($134 million), due mainly to higher Windows Phone earnings.

Problem being, for all that revenue growth, costs are also going up. Cost of revenue went up 35%, to $1.4 billion, mostly on account of Surface [http://www.escapistmagazine.com/news/view/125988-Microsoft-Slices-30-Off-Surface-RT-Prices] and Windows 8. Online infrastructure expenses and payroll issues were a large part of that 35%. Advertising for Windows 8 and Surface didn't do Microsoft any favors either, and pushed operating expenses up. But one of the biggest clouds - no, not that Cloud - on the horizon is the decline in the PC market, which is still hitting Microsoft hard. Its online services - Skype, Xbox LIVE and Office, as well as services provided by the other Cloud - are doing well, and offsetting, at least in part, the lack of hardware sales. "The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud," says COO Kevin Turner.

But here's the thing. Microsoft has already spent a mint on the Xbox One, and Sony [http://www.escapistmagazine.com/news/view/125343-Economist-Says-Xbox-One-is-Too-Expensive] might carve up market share like a juicy turkey. Christmas had better be good for the Xbone; the entertainment division doesn't need a financial black eye right now.

Source: Microsoft [http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY13/Q4/default.aspx]


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[Covarr]

"a deferral of cash earned in 2012 associated with the Windows Upgrade Offer"
I find such deferrals to be patently dishonest business. It may work out the same looking at a 10-year average, it disguises exactly how shaky a company's profits are.

If you don't just discount that deferral, but put it back in 2012 where it belongs, how much has their revenue gone up? Or does that 3% figure already put that deferral back into 2012?

P.S. Thanks

 

[Shinsei-J]

Oh, wow.
Things are really getting interesting for Microsoft.
Though this all just brought up one question in my mind.
What would have happen if Microsoft axed the entertainment department while the Xbone was still always on?

 

[Ruley]

It should be illegal for businesses to declare deferral profit as part of the next financial year. it should be included as a prediction in last years report as that earning was made due to the efforts of last year with a followup in this years report noting if those predictions were made or not. still declaring the money earned but relating them to the year in which the work was done for their earning. This years report should only include profit earned from this years work.

It is dishonest for people to believe Microsoft did enough work for an extra 7% profit increase, 10% has a more physiological impact than 3% because its double digits.

Thankfully, people managed to read the small print and show that microsoft is stalling as a business and the Revamp of Windows 8 failed to lift its back up into the same margins as Apple. Now a lot seems to be riding on the Xbone and the already flumped Surface Tablet (recent price cut), despite the fact that the entertainment section only contributes about 11-13% of total revenue? Can the Xbone blow that out of the water and get microsoft out of this stall in growth?

From the gamer backlash, lets just say theirs already a dark cloud over next years financials...

 

[Adam Jensen_v1legacy]

Microsoft's CEO is an incompetent psychopath on cocaine. It's surprising that they're still in business without Bill Gates.

 

[Strazdas]

It should be illegal for businesses to declare deferral profit as part of the next financial year. it should be included as a prediction in last years report as that earning was made due to the efforts of last year with a followup in this years report noting if those predictions were made or not. still declaring the money earned but relating them to the year in which the work was done for their earning. This years report should only include profit earned from this years work.

It is dishonest for people to believe Microsoft did enough work for an extra 7% profit increase, 10% has a more physiological impact than 3% because its double digits.

Thankfully, people managed to read the small print and show that microsoft is stalling as a business and the Revamp of Windows 8 failed to lift its back up into the same margins as Apple. Now a lot seems to be riding on the Xbone and the already flumped Surface Tablet (recent price cut), despite the fact that the entertainment section only contributes about 11-13% of total revenue? Can the Xbone blow that out of the water and get microsoft out of this stall in growth?

From the gamer backlash, lets just say theirs already a dark cloud over next years financials...

the sale shoudl be put in the books the day the sale happened (not when the money was paid). prediction should not be put into books. if you upgraded it this year, you account that for this year, and it does not matter that infrastructure was set up last year. if you bought a building, you dont put "prediction profit for next 25 yaers" into the book and count it as profit. it does not matter when the services was manufactured, only matters when it was sold.
MS was stalling for a lnog while now and its only ofset by consuming 3rd party services and letting them take the toll (MSN, Skype) while since you leave nothing for them in the earnings department, they get worse and worse over time (same two examples). Windows 8 is as mcuh a failure was Vista was. they actually had to force shops to stop selling windows 7 because noone was buying 8. same happened with vista and XP. And their new heracy of MS office, well, lets just say i still think 2003 was the best one. I mean Excel was imprved heavility in 2007/2010, but thats about all.

Microsoft's CEO is an incompetent psychopath on cocaine. It's surprising that they're still in business without Bill Gates.

you do not stop a falling bus by farting cocaine at the bottom. In simple terms - inertion, MS has A LOT of it.