Microsoft (MSFT) Last Update 6/24/21
Related: VMW ADBE ORCL SAP
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Microsoft
$292.01
Yours
Trefis Price
N/A
$287
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


Trefis Report
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Microsoft Company

VALUATION HIGHLIGHTS

  1. Intelligent Cloud constitutes 38% of the Trefis price estimate for Microsoft's stock.
  2. Productivity And Business Processes constitute 35% of the Trefis price estimate for Microsoft's stock.
  3. More Personal Computing constitutes 24% of the Trefis price estimate for Microsoft's stock.

WHAT HAS CHANGED?

Latest Earnings

For Q3 2021 (ended Mar 2021), Microsoft reported $41.7 billion in revenue, increasing 19% y-o-y. Operating income was $17.0 billion, up 31% y-o-y and Net income was $15.5 billion, up 44% compared to the same period in the previous year. Revenue in Productivity and Business Processes was $13.6 billion up 15% y-o-y. Revenue in Intelligent Cloud was $15.1 billion up 23% y-o-y. Revenue in More Personal Computing was $13 billion up 19% y-o-y.

Impact of Coronavirus

IT software and Services industries are suffering from a fall in demand for software and web services as consumers are focusing solely on essentials and not discretionary products. That said, the industry has seen companies with a portfolio of software as well as services aimed at remote collaboration benefit due to the growing number of people globally. Many companies are also operating with employees working remotely from their own home.

Microsoft acquires Metaswitch Networks

Microsoft announces definitive agreement to acquire Metaswitch Networks with a view to expand approach to empower operators and partner with network equipment providers and deliver on promise of 5G. The acquisition builds on the company's recent acquisition of Affirmed Networks, which closed on April 23, 2020. The convergence of cloud and communication networks is expected to present a unique opportunity for Microsoft to serve operators globally via continued investment in Azure.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Microsoft's value that present opportunities for upside or downside to the current Trefis price estimate for Microsoft:

Productivity And Business Processes

Intelligent Cloud Division

  • Intelligent Cloud Revenues : We currently forecast Intelligent cloud revenues will grow to $73 billion by the end of our forecast period as the company continues to offer more services on its Azure platform and its Server offering continue to gain traction due to change in mix towards cloud-based services.
  • Intelligent Cloud Operating Margin: We currently forecast operating margin for this division to stabilize at 39-40%. In FY2017, it declined to 33% as the company combined some of its not so profitable businesses and de-itemize cloud services, some of which were offered at lower price points. This increased slightly to 37.9% in FY2020.

More Personal Computing

BUSINESS SUMMARY

Microsoft makes money primarily through the sale of software server licenses, business productivity, and operating system software. Microsoft's business productivity software suite, known as MS Office, is used for word processing, spreadsheet preparation, presentations and email. MS Office is sold primarily to businesses worldwide. Microsoft's operating system software, known as Windows, is sold primarily to PC manufacturers (such as Dell, HP, Acer), which sell Windows-based PCs to consumers and businesses. Its Server software includes MS SQL Server and Windows Server that is sold to application development companies.

SOURCES OF VALUE

We believe Productivity services and Intelligent cloud are the most valuable segments of Microsoft for the following reasons:

MS Office Has High Market Share

Microsoft Office has a higher market share in the productivity market compared to the market share Windows OS has in the PC market. Even if users use Mac OS X over the Windows OS for their personal computing needs, Microsoft's Office Suite is still one of the best available productivity suites on the platform. Even as more competition enters the productivity software industry, we still think that Office is substantially better than competing products.

Popularity of Azure Platform, Windows And SQL Server

Due to increase in Internet penetration, business activity on the Internet, big data analytics has come to fore. As a result, popularity of cloud services (IaaS, PaaS) and SQL server is on the rise. Furthermore, Microsoft's Azure platform has resulted in an increase in sales of its virtualized version of its Windows server. The work from home order due to the covid pandemic has increased the company's cloud services demand.