Ahead of the Bell: Microsoft shares drop in premarket

NEW YORK—Shares of Microsoft Inc. dropped in premarket trading Friday as Wall Street weighed the software company's fiscal third-quarter results and potential acquisition of Yahoo Inc.

The stock fell $1.49, or 4.7 percent, to $30.31 ahead of the opening bell.

While quarterly profit of 47 cents per share beat Wall Street's 44 cents per share expectation, sales in divisions making Windows and Office products slipped and the company issued somewhat soft fourth-quarter guidance.

Deutsche Bank analyst Todd Raker said investors may be disappointed by the numbers, but said the Redmond, Wash., company's risk and reward are balanced, and reiterated a "Buy" rating and $36 price target.

The target implies he expects the stock to jump 13 percent over Thursday's $31.80 close in the next 12 months.

Raker praised strong performance in the Xbox 360 gaming division, noting sales met expectations. Moving forward, a growing number of users, and the launch of a new "Grand Theft Auto" game will likely boost sales, he said.

Oppenheimer & Co. analyst Brad Reback echoed confidence in the Xbox 360 unit, but said low engineering and design margins, as well as the Yahoo bid, may likely keep shares range-bound in the short term.

He rates shares "Perform" and noted Microsoft bought back fewer shares -- about $1.2 billion worth -- during the quarter compared with previous periods due to the Yahoo bid.

Lehman Brothers analyst Israel Hernandez called the results "disappointing" and kept his rating and price target suspended.