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Microsoft Misses March-Quarter Views On Sales, Earnings

Microsoft ( MSFT ) late Thursday reported fiscal third-quarter sales and earnings that missed Wall Street’s targets, prompting investors to sell off shares of the software giant. The Redmond, Wash.-based company earned 62 cents excluding items, flat with the year-earlier quarter, on sales of $22.08 billion, up 2%, in the quarter ended March 31. Analysts polled by Thomson Reuters expected 64 cents EPS and $22.09 billion in sales. Microsoft stock was down more than 3% in after-hours trading, following the earnings release. During the regular session, Microsoft rose a fraction to 55.78 on the stock market today . Microsoft stock had been trading just below its all-time high of 56.85, reached on Dec. 29. Microsoft was scheduled to give current-quarter guidance on a conference call with analysts later Thursday. For the June quarter, Wall Street was modeling for Microsoft to earn 66 cents a share, up 10%, on sales of $23.04 billion, up 4%. Investors have been upbeat over Microsoft’s transition from desktop software to Internet cloud computing services, such as Azure, Office 365 and Dynamics CRM Online. Microsoft’s commercial cloud business in Q3 reached an annualized revenue run rate of over $10 billion. “Organizations using digital technology to transform and drive new growth increasingly choose Microsoft as a partner,” Microsoft CEO Satya Nadella said in a statement. “As these organizations turn to us, we’re seeing momentum across Microsoft’s cloud services and with Windows 10.” Under generally accepted accounting principles (GAAP), Microsoft reported earnings per share of 47 cents, down 23% year over year, on sales of $21.73 billion, down 6%. Microsoft’s non-GAAP results included a $1.5 billion revenue deferral primarily related to Windows 10. Excluding the impact of foreign exchange rates, Microsoft’s sales would have been up 5% in Q3 on a non-GAAP basis. Of Microsoft’s three business segments, Intelligent Cloud was the top performer. Sales in the unit grew 3% (up 8% in constant currency) to $6.1 billion. The Intelligent Cloud segment includes server products and services such as Windows Server, SQL Server, System Center and Azure. Microsoft’s Productivity and Business Processes unit saw sales rise 1% (up 6% in constant currency) to $6.5 billion. Office 365 consumer and commercial offerings and Dynamics CRM Online were big contributors in the quarter. Microsoft’s More Personal Computing unit increased sales by 1% (up 3% in constant currency) to $9.5 billion. The unit includes Windows software, PC and phone hardware, Bing search and Xbox gaming.

Best Buy Posts Better-Than-Expected Q4, Ups Dividends

Consumer electronics retailer Best Bu y ( BBY ) reported better-than-expected fiscal fourth-quarter results early Thursday, but it continues to face declining sales overall and in key categories, and its guidance missed Wall Street estimates. Best Buy stock was up 2%, above 32, in afternoon trading on the stock market today , as investors cheered the announcement of a special cash dividend and higher quarterly dividend. Best Buy said it will pay a special dividend of 45 cents a share, or about $145 million, related to the net after-tax proceeds of certain legal settlements and asset disposals. The retailer also boosted its regular quarterly dividend by 22% to 28 cents a share. Plus, Best Buy announced a new $1 billion share-repurchase plan expected to be completed over the next two years. Best Buy CEO Hubert Joly said the company aims to be a “premium dividend payer,” with a non-GAAP dividend payout ratio between 35% to 45%. In its fourth quarter ended Jan. 30, the Richfield, Minn.-based company earned $1.53 a share excluding items on sales of $13.62 billion. Analysts polled by Thomson Reuters expected Best Buy to earn $1.39 a share on sales of $13.61 billion. On a year-over-year basis, EPS rose 3% and sales fell 4%. Under generally accepted accounting principles (GAAP), Best Buy’s earnings per share fell 5% to $1.39. Best Buy’s same-store sales slipped 1.8% in Q4. But the company’s e-commerce sales jumped  nearly 14% to $1.95 billion, accounting for 15.6% of total U.S. revenue. In its online sales segment, Best Buy competes with industry powerhouse Amazon.com ( AMZN ). Growth in health and wearables, home theater and major appliances was more than offset by “significant declines” in mobile phones, tablets and digital cameras, Best Buy said in a press release . For the current quarter, Best Buy expects to earn 31 to 35 cents a share, vs. 37 cents a year earlier. The midpoint of 33 cents a share would represent a year-over-year decline of 11%. It sees sales falling 3% to $8.3 billion based on the midpoint of guidance. Best Buy Sees Growth Later In Year Analysts polled by Thomson Reuters were modeling for Best Buy to earn 38 cents a share on sales of $8.4 billion. Best Buy Chief Financial Officer Sharon McCollam said the retailer expects to see sales decline in the first half of the fiscal year, followed by growth in the back half. Best Buy is targeting flat domestic revenue for the full year. Appliances, home theater and connected home products are likely to be the top growth categories, she said. Best Buy said it will counter soft overall-sales growth in consumer electronics by focusing on market share gains and by making operational improvements to boost profits. On a conference call with analysts, Joly spoke about the product categories that will drive Best Buy sales. Household appliances, connected home products and large-screen ultra HD or 4K televisions are bright spots, he said. Virtual reality headsets are a new category that Best Buy is “very excited about,” Joly said. “This is an interesting category,” he said. “It will be small this year. It may help in the computing category with (sales of) higher-end computers because you’re going to need that computing power. But from a financial perspective, it’s going to be limited.” Three VR platforms are coming to market this year: Facebook ’s ( FB ) Oculus Rift, HTC Vive and Sony ’s ( SNE ) PlayStation VR.

Baidu Spending In Its ‘Online-To-Offline’ Push Will Be Focus In Q4

When Baidu ( BIDU ) reports Q4 earnings after the close on Tuesday, investors will get another look at how the aggressive online-to-offline e-commerce push of China’s largest search company is faring. In June 2015, Baidu announced that it would invest $3.2 billion over the next three years to bolster its lineup of O2O by fortifying group-buying website Nuomi, which Baidu acquired for $160 million in 2014. Baidu has said its big spending effort will pay off because its vast abilities in search will eventually translate to revenue from business commissions. The O2O business model aims to attract customers online, then direct them offline to physical stores and to services including health care and food delivery. “Ultimately, what Baidu is building and offering is much broader than a daily-deals business,” Baidu CEO Robin Li told analysts during a conference call after the company posted Q3 earnings in October. “We are creating an online-marketing and transaction-services platform, bringing to bear the power of our entire platform across search, maps, Nuomi, Takeout Delivery and Baidu Wallet. Our platform benefits from shared synergies, with traffic and data from search and maps enhancing the growth of our newer products.” Banking On O2O To Compete Baidu is banking on its O2O business to help it compete in China’s burgeoning e-commerce arena vs. China e-commerce leader Alibaba Group ( BABA ) and others. But Alibaba, too, has invested heavily to develop its online-to-offline retail capability. Other major China Web companies fortifying their O2O offerings include JD.com ( JD ) and Tencent Holdings ( TCEHY ). Analysts also want to find out how Baidu’s efforts to penetrate into the lucrative market of mobile apps are coming along. Baidu has been slow to advance into mobile apps, while China tech heavyweight Tencent has emerged as the top rival to Baidu in mobile search, according to a report on Jan. 22 from Nomura, which handed Baidu a price target cut and rating downgrade. ‘The Potential Threat’ “Who is the potential threat for Baidu on mobile? We believe it’s Tencent, rather than any of the existing search engines,” wrote Nomura analyst Jialong Shi in that industry note. “Baidu is trying to penetrate into mobile apps, but so far progress has been slow. Based on our checks with industry experts, the challenges for in-app search mainly lie in two aspects — immature technology and reluctance of app developers.” Nomura lowered its price target on Baidu stock to 180 from 200 and cut its rating on Baidu stock to neutral from buy. For Q4, Baidu has guided revenue of between $2.864 billion and $2.95 billion, up between 29.5% and 33.4% year over year in local currency, to between 18.2 billion and 18.75 billion Chinese renminbi. Analysts polled by Thomson Reuters are expecting Baidu to report Q4 revenue of RMB 18.59 billion, up 32% year over year in local currency, with Q4 EPS (GAAP) of RMB 6.60, down 26% year over year. For Q1, analysts polled by Thomson Reuters are expecting Baidu to report revenue of RMB 16.47 billion, up 29% year over year in local currency, with Q1 EPS (GAAP) of RMB 5.48, down 18% year over year. Internet Finance Initiatives Credit Suisse analyst Dick Wei boosted Baidu’s price target to 251 from 210 in mid-December, pointing to positive “traction” in both Baidu Nuomi and the company’s iQiyi video wing. Wei said iQiyi went from 5 million paid users in June to 10 million paid users on Dec. 1, while Baidu Nuomi had attained 11.2% of the online movie-ticket-booking sector. The company’s new Internet finance initiatives are also growing, Wei said. In November, Baidu announced its partnership with China Citic Bank to establish a direct sales bank, Wei said, while by the end of September, the number of registered users for Baidu Wallet reached 45 million, a 520% increase year over year. “We are positive on Baidu’s continued investment in this space,” he said. Baidu stock closed at 145.34 on Friday, down 4.8%. Instability in the Chinese stock markets and investor concern about the company’s O2O spending have helped drag down the price of Baidu stock 33% since this time last year.