Microsoft Top Line To Miss FY 2020 Expectations?

by Trefis Team
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Microsoft (NASDAQ:MSFT) is slated to release its Q2 2020 (ended December 2019) results on January 29, 2020. Trefis details expectations from Microsoft in an interactive dashboard, parts of which are highlighted below. We believe that Microsoft’s Revenues will be lower than consensus and Earnings will edge consensus. For full year 2020, we expect Microsoft to report revenues of $134.3 billion (vs. consensus estimate of $140 billion), which would be 6.7% higher than the previous year. Earnings are likely to be around $5.61 (vs. consensus estimate of $5.39), improved on the $5.06 reported in 2019, primarily due to higher revenues and a better net income margin. Our forecast indicates that Microsoft’s Valuation is $158 per share, which is lower than its current market price of roughly $167.

A] Revenue expected to be lower than Consensus

  • Total revenues have increased from $96.6 billion in 2017 to $125.8 billion in 2019.
  • Further, Trefis estimates Microsoft’s revenues to improve by 6.7% to $134.3 billion in 2020.
  • Revenue from all segments is expected to push the growth for 2020 with the Productivity and Business processes segment expected to record the highest improvement in absolute numbers.

A separate interactive dashboard for Microsoft provides an in-depth view of Microsoft’s revenue trend and segment-wise revenue performance, along with forecast for 2020.

B] EPS to edge Consensus

  • Microsoft’s 2019 earnings per share (EPS) is expected to be $5.61 per Trefis analysis, higher than the consensus estimate of $5.39 per share.
  • An increase in revenues as detailed above, along with slower increase in Total expenses and lower share count, will drive the EPS increase compared to 2019.
  • As we forecast Microsoft’s Revenues to improve and Expenses to increase comparatively slower in 2020 (6.7% vs 5.4%), it will result in an improvement in Microsoft’s Net Income Margin figure from 31.2% in 2019 to 32% in 2020.

C] Stock Price Estimate slightly higher than Market Price

  • A trailing P/E multiple of 28.1x looks appropriate for Microsoft’s stock, which is slightly lower than the current implied P/E multiple of 31x.
  • As per Trefis, Microsoft’s 2020 revenue will be lower than the market expectations, while earnings will be higher compared to expectations. This forecast works out to a fair value of $158 for Microsoft’s stock, which is lower than its current market price of around $167.

Additionally, you can input your estimates for Microsoft’s key metrics in our interactive dashboard for Microsoft’s pre-earnings, and see how that will affect the company’s stock price.



See all Trefis Price Estimates and Download Trefis Data here

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