Microsoft EDD Q1 FY 09 end Sep 30, 2008 SIMPLE ANALYSIS

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Can someone tell me what GAAP stands for, and if needed (depending on how self-explanatory it is) tell me what it is about.

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generally accepted accounting principles...

generally in accounting - you match the revenue and expenses..

gaming example.

if i was a game store and you "pre buy" a game for $50 from my store (that is not released yet, and therefore I don't have it in stock) - to be delivered 6 months later

then if I am a public company and I have to report this transaction

then it is NOT revenue
because GENERALLY revenue should match with the expense

therefore, i would have to report this REVENUE 6 months later

even though I already got your $50

(the cash of $50 will appear in my assets though so everything is still accounted for and i will have a $50 liability - bec i owe you $50 of product)


this is my understanding from EA's explanation (i actually talked to investor relations long time ago)..

So, if Madden (for example) cost $60 (assume you bought it directly from EA)
and it has an online component that EA will have to pay for (eg servers)..

at an estimated time of 6 months..

THEN EA, with their GAAP reporting has to report (and they should have a formula) like this:

Month 1 = 20
Month 2 = 10
Month 3 = 10
Month 4 = 8
Month 5 = 8
Month 6 = 4

Total = $60

bec EA has to "pay" or has the expense of running servers for 6 months, then they have to match revenue with expenses at the SAME TIME they are incurred.

thats y when u look at EA's books there are a wide disparity between their PUBLICLY REPORTED GAAP financial statements vs their OTHER financial statement for comparison

hope that is simple enough.

so for live, could microsoft be splitting it two ways? the retail version, as same quarter expenses, with online payments, making the monthly gaap appearance?

also the live cards sold through retail, are probably not the preferred method of MS selling them, since when they go straight through live MS makes more profit, it would seem like they might discount the live payment, to encourage more people to do this. but since they dont, I would say this is evidence that opening new accounts is most likely to happen with store bought cards, while the average user renews with direct payment through live.

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In general (and in theory), yes, Live should be split up into monthly / quarterly revenue, bec the service is being provided monthly and the expenses are being incurred monthly as well.

this would probably smooth the division's financials a bit, since they have an ONGOING revenue stream, as opposed to strictly hardware/software sales.

But of course, that EDD division is full of so much other products that it is hard to tell...