Microsoft (Nasdaq: MSFT) Stock Jumps 4% on Earnings, but Didn’t Get This Key Info

An earnings beat had Microsoft (Nasdaq: MSFT) stock up as high as 4.4% in after-hours trading Thursday.

Microsoft's earnings of $0.78 a share were well above analyst expectations for $0.68 a share, and a slight increase over the year-ago number of $0.76. Revenue rose 14% to $24.52 billion.

Just about the only blight on the report was the 3% drop in sales of Windows to the consumer PC market.

Microsoft's enterprise businesses did especially well, with triple-digit growth in the numbers of customers of both Office 365 and Azure. The company said commercial Cloud services revenue more than doubled, and its server business gained market share.

Revenue from the Surface tablets more than doubled quarter-over-quarter to $893 million, indicating an improvement in Microsoft's mobile efforts, even if they still lag far behind the offerings from Apple Inc. (Nasdaq: AAPL) and devices running Google Inc.'s (Nasdaq: GOOG) Android operating system.

The message is clear: While Microsoft has stumbled on the consumer side, its efforts in the enterprise are thriving.

"You've seen strong traction on the cloud side with Azure and Office 365," Daniel Ives, an analyst at FBR Capital Markets & Co., told Bloomberg BusinessWeek. "The tablet cannibalization issue continues to be a major headwind for Windows sales."

Bing, Microsoft's search engine business eked out another small gain in market share, which search advertising grew an impressive 34%, a very promising sign for this division as it continues to chip away at Google's dominance.

The company also said it sold more than 7 million of its new Xbox One consoles; according to research firm NPD group, the gaming system was the top seller in the United States in December, overtaking the Sony PlayStation 4.

But while Wall Street welcomed the positive Microsoft earnings news, it would rather know the answer to this much bigger issue...

What Investors Really Want to Hear from Microsoft (Nasdaq: MSFT)

MSFT investors want to know who will succeed outgoing Chief Executive Officer Steve Ballmer.

Last August Ballmer said he would leave the post within the next 12 months, but the search for a new top executive has not gone well. Recently Ford Motor Co. (NYSE: F) CEO Alan Mulally, a name many put at the top of their most likely lists, said he planned to remain at the automaker.

The uncertainty over who will take the reins of the tech giant makes Wall Street more nervous the longer it goes on. With Mullally out of the picture, there is no front-runner and no clear timetable for when Microsoft might announce a decision.

And it still could be a while, with potential candidates said to be nervous about running a company that has Microsoft's legacy issues such as its struggles in mobile while having both Ballmer and founder Bill Gates looking over their shoulder.

Earnings aside, perhaps the biggest potential catalyst for Microsoft in the near future will be the resolution of who will take the CEO job.

Original post from 1/23/14 at 7 a.m.:

Microsoft Corp. (Nasdaq: MSFT) stock has been drifting lower this week as investors don't know what to expect from the Q2 2014 earnings due out today (Thursday) after the bell.

MSFT stock fell 0.66% Wednesday to $35.93. The stock is down nearly 4% year to date.

Wall Street is looking for the Redmond, Wash.-based tech giant to report earnings of $0.68 a share for its fiscal second quarter, which would be a 10.5% drop year over year. However, MSFT has a pretty good track record for beating expectations, having done so three out of the past four quarters.

Microsoft stock had an excellent 2013, registering a 41% increase. This was despite the overhang from the languishing PC market and uncertainty over who will succeed outgoing Chief Executive Officer Steve Ballmer.

But to repeat those gains, Microsoft is going to have to show it has a strong strategy for dealing with the continuing shifts in the technology landscape going forward.

That's why today's Microsoft earnings report has to bring clarity on these issues...

The 6 Factors That Will Most Affect Microsoft (Nasdaq: MSFT) Stock Today

Here's a preview of what today's earnings will tell us about the company and the direction of Microsoft stock:

• The New CEO: When Ballmer announced his forthcoming departure last summer, it was expected that a successor would have been named by now. Microsoft needs to know who its next leader will be so the leadership transition can begin. Apparently possible candidates are reluctant to take the job with both Ballmer and founder Bill Gates still very much involved with the company. While it's very unlikely Microsoft will name a new CEO in the earnings call, it should be able to set a deadline for when the decision will be made to reassure anxious shareholders.

• Mobile: Microsoft spent $7.2 billion to buy Nokia Corp's (NYSE ADR: NOK) mobile phone business, an expensive admission that the company's smartphone strategy hadn't worked. Expect an update on the progress of the integration of this unit. Also, sales of the Surface 2 tablet will indicate whether Microsoft is finally getting a foothold in the mobile market that has so long eluded it.

• Windows 8: Sales of Windows could be disappointing, as the PC market lost more ground in 2013. And Windows 8 has suffered from bad publicity and consumer reluctance, to the point where Hewlett-Packard Co. (NYSE: HPQ) this week said it would offer some new PCs with the older Windows 7 system. Windows sales were down 7% in the previous quarter.

• The Cloud and the Enterprise: The biggest bright spot in Microsoft's earnings should be its Cloud Computing initiatives. The company launched its Cloud OS Network late last year of service providers using Microsoft's cloud platform. This strategy has the potential to add substantially to the MSFT's enterprise revenue, already 55% of the company's total income. Microsoft's sales to businesses (particularly servers) have remained a strength, and we should see that reflected in the Q2 earnings.

• Xbox One: After a decade of losing money, the Xbox division in recent quarters has finally been paying off for Microsoft. Still, the gaming unit is not a big profit center. Its value going forward will be as a beachhead in the living room, making it a conduit for more streaming video content as well as a possible hub for the Internet of Things. Any hints along these lines in the earnings call could help reveal what Microsoft has planned for its Xbox division.

• Bing: Another long-time money loser for Microsoft, the Bing search engine (and associated online services) has started to show signs of life of late. The division saw a 47% increase in search revenue last quarter, helped by a 1.7 percentage point gain in search market share. Continued progress on this front would not just be good news for earnings, but would be a sign that Microsoft might finally be getting a little traction in its challenge to Google Inc.'s (Nasdaq: GOOG) dominance.

Finding the best tech stocks is a lot easier when you know what the major tech trends are going to be. That's why we took a good look at what happened at the recent Consumer Electronics Show (CES), and here are the investment ideas we came up with...