Microsoft Splashes, Shares Dip

As analysts had been expecting ahead of Microsoft (MSFT) earnings report for its fiscal 4th quarter and fiscal 2010 year-end, the company managed solid positive surprises on both the top and bottom lines after the closing bell Thursday. Fourth quarter EPS of 51 cents on company-record revenues of $16.04 billion beat the Zacks Consensus Estimates by 10.87% and 5.04%, respectively.

For Microsoft’s fiscal year-end, the company posted EPS of $2.10 per share, topping the Zacks Consensus Estimate by 4 cents. Revenues of $62.48 billion in the fiscal year are also an all-time record for Microsoft. The company’s CFO and COO cited strength where analysts had generally been looking for it: in its Windows 7 operating system, which has sold 175 million licenses thus far, and in its Bing search engine, which enjoyed its 13th straight month of increased market share.

Microsoft shares had been down roughly 15% year-to-date prior to Thursday’s trading session, where investors were generally optimistic about Microsoft’s potential results. MSFT shares closed up 72 cents, or 2.87%. After-hours trading has been notably reserved, however; shares have dipped as much as 22 cents since the company’s earnings beat. Have the recent murmurs about CEO Steve Ballmer being under pressure from within the company overshadowed today’s successful showing? Or do investors feel the gains made during the day priced in the good news?

Analysts have been generally optimistic in the past month regarding Microsoft’s earnings. Five analysts had upwardly revised earnings estimates for the quarter — and five for the fiscal year — in the past 30 days. However, the magnitude of earnings revisions were another story: the 46 cents per share consensus estimate was up only a penny from where it was at the beginning of the quarter. For fiscal 1st quarter 2011, the Zacks Consensus Estimate is 54 cents per share, and $2.33 for the full year 2011.

We will have a much more in-depth on the Microsoft earnings story before the bell on Friday. Currently, MSFT has a Zacks #3 Rank (Hold), but a longer-term Outperform recommendation from Zacks Equity Research.

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