Is Microsoft ($MSFT) a Good Price & Good Company ?
This will be my afterthoughts to Tiger_chat 's question of whether an investor profits from a good company or a good price ?
To that I have asked, "why not both" ?
Wouldn't that have more upside comparatively speaking ?
Having covered a handful of US banks, I am keen to look at a Tech Giant (Non-bank) company.
Lets take a look at $Microsoft(MSFT)$ , its Q2 2023 earnings and see if it still fits the bill.
Sidetrack: I have covered (1) an investment management company, (2) a healthcare company, (3) an entertainment company and (4) 7 financial institutions; to test out this theory.
- Netflix Inc - Click here to read. Like the post ok. Tks.
- Goldman Sachs - Click here to read. Like the post ok. Tks.
- Morgan Stanley - Click here to read. Like the post ok. Tks.
- BlackRock - Click here to read it. Like the post ok. Tks.
- UnitedHealth Grp - Click here to read. Like the post ok. Tks.
- Citigroup - Click here to read. Like the post ok. Tks.
- JP Morgan - Click here to read. Like the post ok. Tks.
- Bank of America - Click here to read. Like the post ok. Tks.
- Wells Fargo Inc - Click here to read. Like the post ok. Tks.
- Jefferies Financial Group - Click here to read. "Like" the post ok. Tks.
- An American multinational technology corporation
- Founded on 04 Apr 1975 (47 years young company)
- Founders were Bill Gates (19 yo) & Paul Allen (22 yo)
- Microsoft (MSFT) was meant to mean "microcomputer software". Poignant isn't it.
- Listed on Nasdaq on 13 Mar 1986 at $21 a share.
- Its area of excellence lies in the followings : computer software, consumer electronics, personal computers, and related services.
- Who haven't come across Windows operating systems for PCs, Notebooks, Tablets. Even mobile phone at one time.
- What else ? Its browsers - Internet Explorer (IE) and now Edge web browser.
- Its Microsoft Office suite of apps eg. MS Word, Excel, Powerpoint etc..
- Entertainment product like Xbox video game console
- More recent product - Microsoft Surface lineup of touch screen PCs
- Microsoft Azure ranks #2 in the Top 10 Global cloud service providers (2023)
- It ranks #14 in Fortune's largest companies by revenue (US) as of 24 Jan 2023.
- In Apr 2019, MSFT reached the Trillion-dollar market cap, becoming the 3rd US public company to be valued at over $1 trillion after Apple and Amazon respectively.
n 2022, a year where US market has been hammered by extreme volatility and ease of covid pandemic restrictions - how did Microsoft fare ?
Current stock price < 25 Jan 2022 stock price; by -16.10%. Fared better than US market 2022 perf.
MSFT Q2 2023 - Earnings summary
- Total revenue came in at $52.72 Billion; that is +2% (QoQ) vs Wall street expectation of $52.94 Billion, according to Refinitiv. The 2% growth is MSFT's slowest rate since 2016.
- Net income fell to $16.43 Billion vs $18.77 Billion (Q2 2022); that is -12% (QoQ)
- MSFT has taken $1.2 Billion charge in Q2 2023 with the bulk going to severence package budget, as a result of cutting 10,000 jobs. Remaining apportioned to hardware lineup & consolidate leases.
- Earnings per share came in at $2.20 (GAAP) vs $2.47 (Q2 2022); that is -11% (QoQ).
- Gross margin came in at $35.26 Billion vs $34.8 (Q2 2022); that is +1.32% (QoQ).
- Above is MSFT's 3 Business segments
- Productivity & Business processes saw a +7% improvement to $17 Billion. For detailed breakdown, pls refer to above table.
- Intelligent Cloud also saw a credible +18% gain to $21.5 Billion.
- More Personal Computing had a dismal performance with a -19% loss to $14.2 Billion. Both "Windows OEM" & "Device" registered a -39% loss.
- Gartner said the total amount of PC shipments in 2022 was close to pre-pandemic levels, clearly indicating that the boom of laptop purchases is truly over.
Xbox and LinkedIn - revenue growth
- Xbox hardware revenue has decreased by -13%; alongside a -12% dip in Xbox content & services revenue. The "declines" primarily were due to “a strong prior year comparable”.
- This was largely due to pandemic lockdown that resulted in consumers turning to Xbox to kill time.
- With lockdown removed and mobility returned, overall, Microsoft’s gaming revenue declined 13 percent year over year.
- LinkedIn revenue grew +10% driven by Talent Solutions.
- LinkedIn sessions grew +18% with record engagements.
Microsoft - other information
Microsoft's CEO on Q4 2022 Results:
“The next major wave of computing is being born, as the Microsoft Cloud turns the world’s most advanced AI models into a new computing platform. We are committed to helping our customers use our platforms and tools to do more with less today and innovate for the future in the new era of AI,” said Microsoft’s CEO Satya Nadella.
Why Microsoft is Both A Good Price and Good Company ?
- It is a tech company with a diverse product range.
- While the number of PCs shipped declined during Q2 2023 reporting, usage intensity of Windows continues to be higher than pre-pandemic, with time spent per PC up nearly +10%
- Althought Xbox hardware sales have plateaued, MSFT continues to register new highs for [Xbox] Game Pass subscriptions, game streaming hours, and monthly active devices”... said Microsoft CEO.
- Monthly Xbox active users surpassed a record 120 million during Q2 2023” - another highlight worth mentioning.
- Microsoft's continual investment, push & growth in Cloud computing platform (for Corporates) will help to fortify this Tech giant position in Technology front.
- On "cloud endeavour" MSFT has extended its OpenAI partnership with investment that may be valued at $10 Billion.
- The long-term OpenAI partnership will see MSFT's exclusive cloud partner for OpenAI & MSFT's cloud services powering all OpenAI workloads across products, API services and research.
- In Dec 2022, MSFT along with other companies have been awarded a US Air Force defense contract worth $900 million; for the development of multi-domain systems capabilities.
- MSFT is also diligently to bring closure to its planned $69 Billion acquisition of game publisher Activision Blizzard by Jun 2023; after US Federal Trade Commission (FTC) sued MSFT to block the sale from proceeding.
- Do you think MSFT would be able to complete its acquisition of Activision Blizzard and generate another revenue stream ?
- Do you think MSFT is a value buy now ?
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