> Not according to GAAP rules...

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.

Zerohedge seems to be a bit sensationalist:)

- 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...

I am shocked that an investing website that uses a quote from Fight Club atop all its pages is sensationalist. Absolutely, completely shocked.

I always prefer GAAP reporting; this gives a common parlance and common description when examining multiple company sheets. Non-GAAP may capture aspects better, but GAAP gives me more context.

I'm of the opposite opinion. While I worked as an equities trader/financial analyst, we didn't move our investments around within an industry all that frequently. When buying, we'd look for a strong sector and then the strong companies within that sector. That's the only major point at which we'd compare between companies within an industry. Once invested, you're not really comparing company vs. company, you're comparing companies against themselves over time in order to evaluate the sector performance. Basically, you have JPM-Q1 vs. JPM-Q2 much more frequently than JPM-Q1 vs. GS-Q1. Non-GAAP reportings typically serve exactly that purpose. It always just comes down to your use-case.

it's only "effectively the same" when you're comparing between different years at the same company. it's absolutely not the same when you're comparing different companies.

I thought that's what I implied. Sorry if that wasn't clear.

This belief that Wall Street is always correct is exactly what caused the previous economic crash. Speculators don't care about a correct investment decision is about riding the trends. If people are buying, it doesn't matter if you don't agree .. you have to buy as well it works as a hedge.

btw, don't say " for the non-finance people " -> it's very arrogant and bankers are already hated as it is.

> This belief that Wall Street is always correct is exactly what caused the previous economic crash.

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.

I forgot Microsoft actions are beyond criticism. Let's buy shares.

That's not even remotely what he's saying. Come on dude.

Hacker News how far are you sinking ? Is it time to give up on you ?

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.

There's a lot more to finance than "evil bankers"

> adds back such items as Windows 10 deferrals to revenue

What does this mean? Are Microsoft counting people who haven't upgraded as if they have upgraded?

Revenue deferral is a very strange term. What basically happened is Microsoft claims Windows 10 is free and gives it away to everyone, hence the non-GAAP income. However, under GAAP, they are not actually giving Windows 10 away for free. Instead, they book revenue from Windows 10 but because they aren't charging for it, they must expense it as a promotional activity. What part of this is a revenue deferral? Nowhere, really, except that revenue which should have been booked is not (because it's free).

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.

Revenue deferral is not strange. It probably is a company has prepaid for licenses. Licenses can't be counted as revenue until it is delivered to them. However the cash can be collected early.

I meant it is a strange way of referring to items given away for free.

it seems to come down to two main points, as far as consumer tech companies go:

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...

That is the standard definition for accounting and has been that way for a while:

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.

>What does this mean?

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.

It might mean the opposite.

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".

>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".

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.

So the news is ... a lie?

Not totally a lie. There are a finite number of accounting rules applied to unique businesses all over the country and globe. However, not all these rules allow a company to fully represent the financial state of the business. Therefore, companies try to reconcile these discrepancies through management guidance and non-GAAP accounting.

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.