Not according to GAAP rules...
http://www.zerohedge.com/news/2016-07-19/microsoft-misses-ga...
http://www.zerohedge.com/news/2016-07-19/microsoft-misses-ga...
Not "rules" but "guidelines". Or quite literally, "principles".
"... stock soars"
The thing is that GAAP vs Non-GAAP is pretty irrelevant unless they regularly change how they do it. If a company reports non-GAAP earnings every quarter with the same methodology, it's effectively the same as reporting GAAP. People on wall street aren't dumb. There is a reason the reaction was positive.
Food for thought, here are GAAP vs non-GAAP reportings for the S&P 500 companies: http://www.auditanalytics.com/blog/wp-content/uploads/2015/1...
For the non-finance people, this is like using snake case in a camel case language or vice versa. Sure, it's an annoyance the first time you look at the project. As long as it's consistent between files, it's not really worth withdrawing from your "things I can bitch about at the dinner table" account.
btw, don't say " for the non-finance people " -> it's very arrogant and bankers are already hated as it is.
This is the easy over-simplification that makes for a convenient blame-game.
> Speculators don't care about a correct investment decision is about riding the trends
Speculators != Investors.
> If people are buying, it doesn't matter if you don't agree .. you have to buy as well it works as a hedge.
No. If other people are buying, you can sit there and do absolutely nothing.
> btw, don't say " for the non-finance people"
No. I'll go ahead and target my explanations to the exact people who may not understand the topic being discussed. If you feel like you're being looked down upon, that's your insecurity, not my problem.
You can see it's the same person with an alternate login. Social media is slowly becoming the biggest confirmation bias factory, facts became totally irrelevant in discussions.
- 1 YEAR AGO, as GAAP: Microsoft reported a $2000 millions in losses
- TODAY, as GAAP: Microsoft reported $3000 millions in profits
YET the story is spun negatively in terms of GAAP, and people will follow that negativity despite having the data literally in their faces!
In this case, what wall street takes into account is Microsoft progress in the cloud, how many physical and virtual widgets they are selling and cost's control as well as currency fluctuations, taxes, etc...
What does this mean? Are Microsoft counting people who haven't upgraded as if they have upgraded?
It sounds like they are deferring some of the revenue from licenses sold with the intention of booking it over the life of the OS, as "free" updates are released.
GAAP rulea may dictate they book the revenue over the life of the OS to better match liabilities in the form of updates. MSFT want to book all the revenue now as an "economic reality".
It sounds like they're also claiming restructurings of their phone hardware division was a "one time charge" and removing those expenses, again, to better represent the "economic reality".
I think you might be right; the revenue should be deferred over the life of Windows 10, but their non-GAAP measure books it up front. Hence the top line beat.
Not a particularly heinous accounting maneuver.
As an observer, you need to make a judgement call on whether you agree with the GAAP numbers, the guidance numbers, or somewhere in between.
1. GAAP says that revenue from a software service subscription (e.g. cloud service) can only be counted as revenue once the service has been delivered, not at time of sale.
http://www.marketwatch.com/story/ea-to-ease-non-gaap-usage-a...
http://www.grayboxpdx.com/blog/post/revenue-recognition-for-...
2. Equity-based compensation is accounted for as a cost.
http://mercercapital.com/financialreportingblog/equity-based...
Persuasive evidence of an arrangement exists Delivery has occurred or services have been rendered The seller's price to the buyer is fixed or determinable Collectibility is reasonably assured.
Stock compensation doesn't make it not an expense. It is coming from somewhere. It is coming from the equity holders pockets therefore it is a real cost.
The basic definition is Assets=Liability+Equity.
So rewriting it E=A-L
If you you pay a person with cash: E-C=A-C-L
When you pay person with equity:
E-X where X is equity you are losing in both cases they are equivalent. So stock option are not free and need to be treated as an expense.
Microsoft obviously does not want to do this since it drops their earnings by a significant amount, but I'm sure their auditors gave them shit for it. Their auditors probably also made them book impairment charges on things they didn't feel were impaired.