Foolish Forecast: Microsoft Bounces

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Slipping search share,
Savior Vista.

Redmond rumbles;
Reverse the falling.

Thursday night, the world's biggest software company reports earnings. That would be Microsoft (Nasdaq: MSFT), and this Fool has prepared some notes for the occasion -- along with an original Fornyrthislag verse to honor National Poetry Month once again.

What analysts say:

• Buy, sell, or waffle? Forty analysts follow Mr. Softy's every move. Twenty-nine of them are buying the stock, two are selling, and the other nine are holding the middle ground. In our Motley Fool CAPS investor community, it's a two-star stock based on input from more than 5,200 users.
• Revenue. Management guidance points to a range between $13.7 billion and $14 billion, and the analyst consensus falls squarely inside that spread. $13.9 billion would be a 27% gain over last year's $10.9 billion.
• Earnings. Again, Wall Street sticks tightly to the company's guidance with a $0.46 per-share consensus -- at the top of an official $0.45-$0.46 range. A year ago, Redmond squeezed out $0.32 of profits per share.

What management says:
A couple of weeks ago, Microsoft created a new board seat for Netflix (Nasdaq: NFLX) CEO Reed Hastings. Chairman Bill Gates was excited about the new addition: "Reed's track record for delivering innovative and disruptive technologies to market is very impressive," he said, praising Hastings' "rich consumer and technology background."

What management does:
It ain't easy being Microsoft these days, judging from the margin and growth trends here. Of course, what you're looking at probably represents rock bottom, as the upcoming report will be the first time Office 2007 and the consumer versions of Windows Vista have a chance to contribute to sales and earnings. Before that, many prospective customers held off on buying office suites and operating systems, knowing that a shiny new version was on its way.

And while it would be fun to bash erstwhile Apple (Nasdaq: AAPL) iPod killer Zune a bit, that certifiable flop doesn't have a large enough impact to make waves here. Not even a ripple.

Margin	9/2005	12/2005	3/2006	6/2006	9/2006	12/2006
Gross	85.4%	84.9%	83.4%	82.7%	82.2%	79.4%
Operating	42.9%	41.6%	38.9%	40.7%	39.9%	36.7%
Net	31.9%	31.6%	31.6%	28.5%	28.5%	25.9%
FCF/Revenue	39.8%	35.2%	32.8%	29%	27.3%	25.9%

YOY Growth	9/2005	12/2005	3/2006	6/2006	9/2006	12/2006
Revenue	6.7%	7.5%	9.6%	11.3%	12.4%	11.4%
Earnings	59.2%	30.6%	19.8%	2.8%	0.5%	(8.8%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While the entertainment division of Microsoft is moving closer to profitability after years of red ink, online services is doing a lobster-walk in the opposite direction. The segment formerly known as MSN can't seem to gain any traction with its efforts to dislodge Google (Nasdaq: GOOG) and Yahoo! (Nasdaq: YHOO) from the top two spots in the online search and advertising markets.

There's a persistent rumor that Microsoft might make a bid for a company like Yahoo! in order to buy the success it couldn't develop on its own. I'll believe that one when I see it, though Gatesville does command enough cash -- $28 billion -- to put a mostly cash deal of that magnitude within the realm of plausibility.

Microsoft is a Motley Fool Inside Value pick, while Netflix and Yahoo! both made it onto the Motley Fool Stock Advisor scorecard.

Fool contributor Anders Bylund is a Netflix shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure will help you find the road ahead.