Microsoft Corporation (MSFT) Strength Puts These ETFs In Focus

microsoftThe software giant, Microsoft, has surprised the market yet again. Unlike the last quarter wherein the company surprised the market with an earnings miss, this quarter the company beat estimates on both revenues and earnings.

Microsoft Earnings in Focus

The company reported a 17% year-over-year jump in its fiscal first-quarter 2014 earnings to 62 cents per share, outpacing the Zacks Consensus Estimate by 8 cents, or 14.8%. This was significantly better than the 3.0% average miss in the four preceding quarters.

Though down 6.9% sequentially, revenues rose 15.7% year over year to $18.53 billion, clearly beating our estimates by 4.1%. (Read: Internet ETFs in Focus on Amazon Sales Beat)

Notably, management changed the operating structure beginning this quarter to bring in more transparency. The new reporting structure clearly reflects the fact that Microsoft continues to derive the majority of its profits from its Commercial business (which accounted for nearly 60% of total revenues in the reported quarter), as compared to its Consumer business.

The company’s third-quarter earnings were primarily led by strong sales of its cloud-based software offerings like SQL Server, Lync, SharePoint and Exchange. This was supported by a stellar performance from commercial cloud services, which jumped 103% year-over-year in the quarter.

Moreover, it is worth mentioning that though its Devices and Consumer segment reported a modest growth of 4%, revenues from the ailing Surface segment have started to pick up. Growth in volumes aided by price cuts across its tablets range enabled the company to drive sequential growth in surface revenues.

Additionally, Microsoft’s search engine, Bing, surprised the market with 47% growth in revenues year-over-year. It looks like Bing is beginning to play a significant role in Microsoft’s integrated services.

Bright Outlook

In order to boost sales of its Surface products, Microsoft recently launched its next generation of Surface RT tablets – Surface 2 and Surface Pro 2 tablets – although it now prefers to call this low end version Surface (without the RT). Nokia’s Lumia tablet will join the club once the takeover formalities are completed next year (Read: 3 Tech ETFs to Watch on Microsoft-Nokia Deal).

With enhanced processing power, battery life, display and camera resolution, market experts predict that Surface 2 is better positioned to compete with the iPad. Moreover, Surface Pro 2 strives to compete with MacBook Air, together with Lenovo, Samsung, and HP.

With more apps and better distribution in this quarter, things can only improve going forward.

ETFs in Focus

Driven by the revenue and sales beat, MSFT shares have soared around 5.3% till date, post its earnings (See: all the Technology ETFs here).

Below, we have highlighted two ETFs touted to be big movers in the coming days, given Microsoft’s solid performance and strong future growth prospects. Investors should closely monitor the movement in these funds and could catch the opportunity from any surge in the price.

PowerShares Fundamental Pure Large Growth Portfolio (PXLG)

This product tracks the RAFI Fundamental Large Growth Index and holds a small basket of 54 stocks with a relatively smaller asset base of $96 million.

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