Tax Write-Down Boosts Earnings Per Share For Microsoft

While the good performance of Microsoft’s cloud business was responsible for the Redmond, Washington-based software maker beating analysts’ estimates in its latest quarterly report, a tax write-drown amounting to $1.8 billion also contributed to the good results. The write-down was from the Windows phone business which has been a loss-maker for Microsoft.

As a result of the tax write-down, there was an addition of 23 cents per share to the earnings. This resulted in the earnings per share of Microsoft rising to 98 cents which beat consensus estimates of 71 centers per share.

Cloud business

In Microsoft’s cloud business, which also consists of cloud software Dynamics 365 and Office 365 and LinkedIn the growth recorded reached 21%. LinkedIn individually generated revenues of $1.1 billion. The cloud infrastructure business of Microsoft recorded an 11% growth in sales as the Azure cloud-computing unit almost double again after a growth of 97%.

“Our technology world view of an intelligent cloud and an intelligent edge is resonating with customers everywhere,” said Microsoft.

Tax write-down

Despite the impressive gains in the cloud business, the tax write-down is what ensured that profits turned out to be 38% higher than what had been expected by analysts. Microsoft was not the only tech giant to benefit from the tax write-down as IBM too was a beneficiary. In the case of Big Blue a tax write-down enabled the company to its earnings approximately 18 cents per share.

In the last three months, Microsoft’s stock has appreciated by 13.3% while the stock has risen by 32.8% in the last one year. During the same period the Standard & Poors 500 index has appreciated by 5% and 13.8% respectively. The Dow, on the other hand, has appreciated by 5.2% and 9.4% respectively showing Microsoft has outperformed the main stock indexes. This comes at a time when the bet by the chief executive officer of Microsoft, Satya Nadella, on the cloud is starting to pay off.

Tax reforms

The tax benefits that IBM and Microsoft have taken advantage of are coming at a time when President Donald Trump is pushing to have the corporate tax rate lowered in order to boost the economy as well as induce the repatriation of profits held overseas by American corporations. But while politicians say the corporate tax rate is too high in the United States, loopholes, write-offs and other tax-avoidance strategies are used ensuring that most firms do not pay the standard 35% rate. In the coming fiscal for instance, Microsoft’s GAAP tax rate is expected to be 8% while its non-GAAP tax rate is expected to be 14%.

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