How Much Will ‘More Personal Computing’ Business Contribute To Microsoft’s Top Line Growth?

by Trefis Team
+13.89%
Upside
137
Market
156
Trefis
MSFT
Microsoft
Rate   |   votes   |   Share

Microsoft (NASDAQ:MSFT) reported strong growth in revenues in fiscal 2017 and 2018 after a slowdown in revenue growth through FY 2016. The company sustained revenue growth in its Productivity & Business Processes (+20%) as well as Intelligent Cloud (+18%) segments in FY’18 ended June. Additionally, the company’s More Personal Computing segment reported a high-single digit increase in revenues in the last couple of years. Going forward, Microsoft seems to be on course to sustain revenue growth through the end of the decade.

For the current fiscal year, we expect Microsoft’s net revenues to increase nearly 10% to over $120 billion, which is further expected to increase 7-8% to over $129 billion through FY’20. We forecast the More Personal Computing segment to add around $4.8 billion to net revenues in this period, which is roughly 25% of the expected total revenue growth. We have created an interactive dashboard for Microsoft’s More Personal Computing Segment, where we have summarized our revenue growth expectations. If you disagree with our forecasts, you can change the key drivers including individual segment revenue for Microsoft to gauge how changes will impact the segment contribution.

Factors Driving Segment Growth

Microsoft’s More Personal Computing segment includes revenues from Windows, search advertising on Bing and related platforms, gaming (XBox), and sales of devices (Microsoft Surface and PC accessories). While the segment has been the slowest growing revenue stream for Microsoft, it still contributes significantly (38-40%) to the company’s net revenues. Furthermore, after witnessing a slowdown in revenue growth in FY’16, the growth picked up in subsequent years. Much of the growth was attributable to search advertising, which reported double digit growth in each of the two most recent fiscal years. Looking ahead, we expect search advertising revenues to continue to increase due to a sustained increase in revenue per search and total search volume. We forecast search advertising revenues to increase to $7.8 billion in FY’19 and $8.5 billion by FY’20. In addition, we forecast Windows revenues to continue grow at mid single digits through the end of the decade to $21.3 billion.

 

Microsoft’s gaming revenues through Xbox software and services picked up in FY’18 after a revenue decline in FY’17. Revenues rose 14% in the fiscal year ended June to $10.3 billion, mainly due to strength in third-party titles. This trend could reverse in the coming years due to longer purchase cycles in the industry. As a result, we forecast gaming revenues to be up 5-6% annually to $11.5 billion by the end of the decade. The fourth sub-segment within More Personal Computing is Devices, which includes revenues generated from sales of Microsoft Surface devices and other PC accessories. These revenues fell significantly in FY’17 after Microsoft discontinued certain smartphone-related businesses, declining 36% to $5.1 billion. Revenues remained roughly flat in FY’18. We expect a modest 2-3% increase in revenues to $5.5 billion by the end of FY’20. If you disagree with our forecasts, you can modify these figures on our  interactive revenue contributor dashboard for Microsoft and come up with your own estimates. You can further use these figures in our valuation dashboard for Microsoft to calculate your fair price estimate for the company’s stock based on the new estimates.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!