What Happened to Microsoft’s Stock after Its Fiscal 3Q16 Results?

The Future of Microsoft: Life after Missed Earnings in Fiscal 3Q16

(Continued from Prior Part)

Microsoft’s stock reaction

Although Microsoft’s (MSFT) cloud offerings—namely, Office 365 and Azure—have continued their growth trajectories, the company’s fiscal 3Q16 results hinted toward slower growth in the cloud space. This might have triggered the fall in Microsoft’s stock, which dropped by ~5% on April 21, 2016, after the company’s earnings release. Its guidance for fiscal 4Q16 also fell short of analyst expectations, and this could have further dampened the sentiment toward the stock.

Unlike peers IBM (IBM) and Oracle (ORCL), Microsoft’s stock rose by ~19% in 2015. In contrast, IBM has been grappling with revenue growth for the past 16 straight quarters, and so IBM saw its stock tank by 14% in 2015. Although its share price had a rally in March, after its fiscal 1Q16 results, IBM’s stock plunged again. Oracle’s stockholders witnessed a similar fate of an 18.8% decline in 2015.

Microsoft’s initiatives to reduce dependence on PCs

Microsoft’s varied acquisitions, partnerships, and launches to establish itself in the rapidly growing areas of mobile, cloud, and big data have played an important role in its stock rise. Apart from boosting its Azure offering, Microsoft is relying on Office 365 and Surface tablets to offset declines in the PC space. However, currency fluctuations from the strong US dollar (UUP) also continue to haunt the company’s performance.

Fiscal 4Q16 expectations

Microsoft expects revenues from Productivity and Business Processes to be in the $6.5 billion–$6.7 billion range in fiscal 4Q16. The Intelligent Cloud and More Personal Computing segments revenues are expected to be in the $6.5 billion–$6.7 billion and $8.7 billion–$9 billion ranges, respectively. Management’s guidance for fiscal 4Q16 failed to meet analyst expectations.

Investors looking for exposure to Microsoft could consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~10.6% of its holdings in Microsoft, it also has an exposure of ~38% to application software.

Now let’s explore what Microsoft has to offer in the software space.

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Browse this series on Market Realist:

• Part 1 - What Really Weighed down Microsoft’s Fiscal 3Q16

• Part 2 - Microsoft’s Fiscal 3Q16: How Much Can We Really Blame the Fall of PCs?

• Part 3 - Inside Microsoft’s MPC Segment in Fiscal 3Q16