Earnings Preview: Microsoft Needs to Reassure If Shares to Move

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Microsoft will report its fourth fiscal earnings quarter after the bell today, and investors will be keenly watching guidance to make sure the company wasn't too aggressive in its forecasts the last time around.

The consensus for earnings later today is 47 cents on $15 billion in revenue, but after last quarter's big and surprising performance, and extremely rosy guidance, there was a growing concern among some analysts that Microsoftmight be getting ahead of itself; that expectations were exceeding reality.

Microsoft didn't offer first quarter guidance the last time around, but did anticipate $2.13 to $2.19 in earnings per share for fiscal 2009, on between $66.9 and $68 billion. If the company can re-iterate that guidance, and offer in-line expectation for its first fiscal quarter, with analysts anticipating 49 cents and $15.1 billion -- as well as beat expectations for its last quarter, these shares could see a nice pop today.

The mix of those revenues for the report later today will also be key. Pacific Crest's Brendan Barnicle expects some nice increases just about every category, along the lines of what happened last quarter. Client business should come in at $4.15 billion, versus the $4.025 billion posted last quarter; Server and Tools should generate $3.7 billion against the $3.255 billion last quarter; the company's online business should come in at $965 million, compared to $843 million last time; the Microsoft Business Division will post $5.3 billion, Barnicle says, compared to $4.745 billion last time around; and Entertainment and Devices, home of the Xbox 360, should come in at $1.55 billion, essentially flat with the $1.576 billion last quarter.

Flat sales in Xbox's division is worth noting. At the Electronics Entertainment Expo this week in Los Angeles, Microsoft painted an optimistic picture about what's coming next for the division. A lot of attention was paid to the latest version of the mega-franchise Final Fantasy and the XIII version of the game coming to Xbox. But with no release date, it's tough to figure what the release might do for the console.

Likewise for the enormous attention around the so-called "exclusive" availability of the massive title "Rock Band" coming to Xbox in the Fall. Just about everyone I talked to about this, including Sony Computer Entertainment of America CEO Jack Tretton and Nintendo America CEO Reggie Fils-Aime, scoffed at Microsoft's "exclusive" claim, saying they'll each have their own versions of the title mere weeks after its availability on Xbox.

I also asked Alex Rigopulos about this. He invented the game and is CEO of the company making it, Harmonix, about the "exclusivity" with Microsoft, and how much money Microsoft threw his way to make that happen. He didn't want to talk specifics, but did offer that the Xbox version was simply "completed first" and that the other versions would follow very closely behind. Kinda sounds like CNBC and our "exclusive" versus "first on" tags for important interviews, but in Microsoft's case, it could mask some Xbox issues where the company needs to rely on hype rather than reality to sell the Xbox success story.

Finances and game-play aside, the other big issue is of course Yahoo. There's probably not much left to say on that front, unless Microsoft chooses to answer Yahoo's latest shareholder missive, out earlier this morning, in its earnings release. That would be unusual, so wait for more color on that front during the company's conference call. Nonetheless, Barnicle calls the Yahoo saga "probably the biggest overhang on the stock" right now, and says there is a lot of uneasiness over exactly what kind of deal will ultimately come from these negotiations, or whether a deal even materializes at all, and how much it will ultimately cost.

Microsoft shares still have a ways to go to get back to their 52-week of $37 and change last November, but they've been rallying nicely into today's after-market news. Beating, which the company has done the past few quarters, seems do-able again today. Analysts hope the company can merely re-iterate full-year guidance that it's already provided, and that too seems do-able. It all seems like a pretty low bar to get these shares to bounce nicely later today.

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