Microsoft’s stock (NASDAQ: MSFT) has lost approximately 26% YTD as compared to the 21% drop in the S&P500 index over the same period. Further, at its current price of $244 per share, it is trading 32% below its fair value of $360 – Trefis’ estimate for Microsoft’s valuation. The technology giant surpassed the consensus estimates in the third quarter of FY2022 (FY July-June), with total revenues increasing 18% y-o-y to $49.4 billion. It was driven by a 17% growth in the productivity and business processes unit, followed by a 26% jump in the intelligent cloud, and an 11% rise in the personal computing segments. The productivity and business processes division primarily benefited from growth in office commercial products & cloud services and LinkedIn revenues. Markedly, growth in LinkedIn was because of higher revenues in talent solutions and marketing solutions businesses. On similar lines, intelligent cloud revenues increased due to higher server products and cloud services income, largely driven by Azure and other cloud services. Further, the personal computing business advanced because of gains in windows and Search and news advertising sub-segments. Overall, the net income improved 8% y-o-y to $16.7 billion.
The company’s top line grew 18% y-o-y to $168 billion in FY 2021, primarily due to an increase in the intelligent cloud business (up 24% y-o-y). Further, the same trend continued in the first three quarters of 2022, with the cumulative nine-month revenues increasing 20% y-o-y to $146.4 billion. This was because of a 19% rise in the productivity and business processes unit, followed by a 27% jump in the intelligent cloud, and a 13% increase in the more personal computing divisions. Altogether, the above growth in the top-line, translated into a cumulative nine-month net income of $56 billion – up 25% y-o-y.
The company has witnessed strong growth over the recent years and we expect it to maintain its growth trajectory over the subsequent quarters. Overall, Microsoft revenues are forecast to touch $196.4 billion in FY2022. Additionally, MSFT’s net income margin is likely to remain around the same level as the previous year, leading to an adjusted net income of $70.2 billion and an annual EPS of $9.36. This coupled with a P/E multiple of just above 38x will lead to the valuation of $360.
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|S&P 500 Return||1%||-21%||86%|
|Trefis Multi-Strategy Portfolio||-8%||-26%||193%|
 Month-to-date and year-to-date as of 6/15/2022
 Cumulative total returns since the end of 2016