Earlier on this week the shock news came in that Microsoft had recorded it’s first ever loss in history since it became a public company 26 years ago!
Microsoft recorded a net loss of $492m in the April to June quarter, or 6 cents a share. Compare this with earnings of $5.9bn, or 69 cents, only a year ago. However this extreme sway in earnings didn’t just happen because of poor sales.
The main reason for this dip in earnings is because Microsoft wrote off the value of an online ad service aQuantive which it purchased in 2007 for $6.3 billion. Microsoft took a $6.2 billion charge to reflect the lack of return that Microsoft has gotten from the advertising service.
This is something that companies frequently do to reflect a decline in the value of their assets.
However it’s not all bad news for Microsoft, in fact there’s not much bad news at all. Despite this decline in earnings, Microsoft’s actual revenue increased by 4%, beating analysts expectations, to $18.06 billion. Once we take out the write down that Microsoft charged itself for aQuantive, earnings came to 73 cents per share, which easily beat the analysts expectations of 62 cents per share.
Most of the company’s sales in the last quarter can from its Office suite of productivity software, Windows 7 and especially from computer servers. The upbeat server and business software sales helped to offset the slow down in consumer products which have slowed down coming up to the release of Windows 8.
There’s nothing too much for investors to worry about at the moment, this loss is rather insignificant in Microsoft’s balance sheet and will be easily recovered in the next quarter unless something totally unexpected happens. Investors are quite interested in Windows 8, and as a result shares for Microsoft’s stock actually climbed after the announcement.
It will be interested to see how Microsoft performs once Windows 8 is released. Could it be a raging success? Or will it prove to be a disastrous move?