Microsoft Shows Broadbased Growth but Upside Capped at $28

-0.42%
Downside
421
Market
419
Trefis
MSFT: Microsoft logo
MSFT
Microsoft
Microsoft FY2011 Results

Source: Microsoft

Microsoft (NASDAQ:MSFT) just announced its Q4 and full year earnings for fiscal year 2011. [1] By all measures, it had a very good year. It reported revenues of nearly $70 billion for the year with net income of $23 billion. Its most valuable businesses: Microsoft Business, Windows and the Server and Tools division all grew reasonably well despite strong competition from the likes of Apple (NASDAQ:AAPL), Oracle (NASDAQ:ORCL), Salesforce (NYSE:CRM) and SAP (NYSE:SAP). The Entertainment and Devices business also exceeded expectations with revenue growth of over 45% year over year, thanks to the excellent sales of the Xbox 360 console and Kinect add-on.

Factoring in the new numbers, we have revised our Trefis price estimate for Microsoft to $28, which is just above the current market price.

Here are a few trends that we think will pave the way for Microsoft’s revenue growth.

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Office and Windows Sales Going Strong

Microsoft Office sales in the past year were solid. Revenue from the business division has grown almost 16% for the full year, more than 100 million Office 2010 licenses have been sold and the company launched Office 365, which should help it land a significant share of the cloud based productivity software market. We expect steady growth in the coming year.

While Windows sales have slowed down a bit with revenues decreasing 2% from the last year, the launch of Windows 8 in the coming year should give the sales numbers a huge boost.

Xbox 360 and Kinect are Dominating Sales in the Console Segment

The Xbox 360 has seen a huge boost in sales since the launch of Kinect a motion gaming add-on. The Entertainment and Devices division’s revenues jumped by 45% thanks to the rise in console sales as well as an increase in Xbox Live subscriptions. We expect strong sales of the Xbox and Kinect next year as well, especially during the holiday season.

Even Windows Phone 7, which has had a rocky start, seems poised to become a leading player in the smartphone market. We expect it to break into the top 3 smartphone platforms in the coming years and it has the potential to turn into a huge revenue growth engine for Microsoft.

See our full analysis for Microsoft

Notes:
  1. Microsoft Reports Record Fourth-Quarter and Full-Year Results, Microsoft, July 21, 2011 []