Microsoft’s stock (NASDAQ: MSFT) has lost approximately 12% YTD as compared to the 5% drop in the S&P500 index over the same period. Further, at its current price of $297 per share, it is trading 20% below its fair value of $371 – Trefis’ estimate for Microsoft’s valuation. The technology giant topped the consensus estimates in the second quarter of FY2022 (FY July-June), with revenues increasing 20% y-o-y to $51.7 billion. Each of the three segments posted growth in the quarter – productivity and business processes (up 19%), intelligent cloud (up 26%), and more personal computing (up 15%). The productivity and business processes mainly benefited from growth in office commercial products & cloud services and LinkedIn revenues. Further, intelligent cloud revenues increased due to higher server products & cloud services revenue driven by Azure and other cloud services. On a similar note, more personal computing growth was because of higher Windows, search, and news advertising revenues. Overall, the net income improved 21% y-o-y to $18.8 billion. It was driven by revenue growth and a slight increase in the operating margin.
The company’s total revenues increased 18% y-o-y to $168 billion in FY 2021, mainly driven by growth in the intelligent cloud segment (up 24% y-o-y). Further, its total revenues for the first half of FY2022 increased 21% to $97 billion. This was because of a 21% rise in the productivity and business processes unit, followed by a 28% jump in the intelligent cloud segment, and a 14% increase in the more personal computing division. All in all, the above growth in the top-line and improvement in operating margin from 42.1% to 43.8% translated into a cumulative six months net income of $3.93 billion – up 34% y-o-y.
Microsoft is likely to continue its growth momentum in the second half of FY2022. Notably, consensus estimates for third quarter revenues and earnings are $49.04 billion and $2.19 respectively. Overall, Microsoft revenues are expected to touch $199.3 billion in FY2022. Additionally, MSFT’s net income margin is likely to see a slight drop from the FY2021 levels, although growth in the top line will likely make up for the lost ground. It will likely result in a net income of $71.3 billion and an annual EPS of $9.44. This coupled with a P/E multiple of just above 39x will lead to the valuation of $371.
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|S&P 500 Return||0%||-5%||102%|
|Trefis MS Portfolio Return||0%||-8%||262%|
 Month-to-date and year-to-date as of 4/7/2022
 Cumulative total returns since the end of 2016
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