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Microsoft Finishes 2016 Strong

During fourth-quarter 2016, Microsoft Corp. ( MSFT ) reported net income of $5.2 billion and diluted earnings per share of 66 cents on an as-reported basis. Adjusting for Windows 10 revenue deferrals, net income increased to $6.515 billion while earnings per share climbed to 83 cents. Both performance figures outperformed comparative values for fourth-quarter 2015, suggesting Microsoft had a strong final quarter of 2016 and expects a good financial outlook for 2017.

Brief summary of earnings report

For the three months ending Dec. 31, 2016, Microsoft reported revenue of $24.1 billion and operating income of $6.2 billion based on generally accepted accounting principles. These figures represent a year-over-year increase of 1% and 3% respectively. GAAP net income increased 4% year-over-year while GAAP earnings per share climbed 6% year-over-year.

CEO Satya Nadella praised the company for delivering good value and opportunities as Microsoft "partners with [their customers] through [the customers'] digital transformation." Artificial intelligence ( AI ) advancements further provides opportunities for the company to drive growth in the Microsoft Cloud.

The AI advancements contributed to higher Intelligent Cloud revenues, which increased to $6.9 billion during the quarter. Double-digit annuity revenue growth increased cloud services revenues, and Microsoft Azure revenues sharply increased as the number of Azure users doubled year-over-year.

Productivity and Business Products revenues increased to $7.4 billion during Microsoft's fiscal second-quarter 2017 as office commercial products, office consumer products and dynamic products increased 5%, 22% and 7% respectively as the number of Office 365 customers increased to 24.9 million. LinkedIn Corp. (NYSE:LNKD) added $228 million in revenue for the period beginning Dec. 8, 2016, the closing date of the acquisition.

Company has strong financial outlook

The Washington-based software company has a financial strength rank of 6 and a profitability rank of 8, both suggesting a strong financial outlook for early 2017. The company's operating margin , net margin and return on equity outperform over 85% of global infrastructure companies. Microsoft's Piotroski F-score ranks 6 out of 9, and its Altman Z-score of 3.37 suggests the company seldom faces financial distress.

Chief Financial Officer Amy Hood cherished the company's fiscal second-quarter results, observing "strong demand for [Microsoft's] cloud-based services" and good long-term growth strategy execution. The company returned $6.5 billion to shareholders in share repurchases and dividends during the quarter, contributing to high share-buyback ratios and trailing dividend yields. The former outperforms 92% of competitors while the latter ranks in the top 1% of global infrastructure companies.


During fourth-quarter 2016, three gurus expanded their positions in Microsoft. Spiros Segalas (Trades, Portfolio) increased his position 32.04%, adding 3,474,268 shares at an average price of $60.15. Manning & Napier Advisors Inc. added 3.53% while Ken Fisher (Trades, Portfolio) tacked on 0.43%.


On Jan. 26, Microsoft's stock price closed at $64.27 per share, increasing about 0.93% from its previous close of $63.52.

Disclosure: No postion in the stocks mentioned.

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This article first appeared on GuruFocus .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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