Microsoft's Worth $40 on Great Earnings

Xbox, Kinect, Surface & Windows Phone

A continued increase in sales of the Xbox and Kinect has driven Microsoft's revenue growth in the last couple of quarters. The Xbox 720 is expected to be launched in 2013, and should lead to a boost in sales. This quarter, we will be looking primarily for any sales numbers for Kinect for Windows, which was launched in February.

Given the large Windows user base, we expect significant sales of Kinect for Windows in the last quarter and the coming ones, which should further drive revenue growth for the Entertainment and Devices division.

Microsoft has also focused on making Xbox Live the complete entertainment hub by adding live TV, streaming video content, music, TV shows, sports content, streaming music, etc. This could give Microsoft a strong foothold in the consumer's living room, which Apple and Google are also trying to enter with their TV offerings. We expect to see increased revenue from Xbox Live subscriptions in the coming years.

We also expect Microsoft's focus on Windows Phone -- wooing developers, focusing on the budget segment and spending heavily on marketing -- to eventually pay off, and give Microsoft a larger share of the global smartphone market. Microsoft recently launched Windows Phone 8, which brings the Windows and Windows Phone platforms closer.

We also expect sales of the Surface tablets to add to Microsoft's topline growth in the Entertainment and Devices division.

Windows accounts for nearly 25% of Microsoft's $40 Trefis price estimate, while Office accounts for around 36%. Xbox, Windows Phone and other devices account for around 4%.

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