Microsoft Stock Missed The Street Expectations In Q4, What’s Next?

+41.77%
Upside
238
Market
337
Trefis
MSFT: Microsoft logo
MSFT
Microsoft

Microsoft’s stock (NASDAQ: MSFT) has lost approximately 16% YTD as compared to the 14% drop in the S&P500 index over the same period. Further, at its current price of $282 per share, it is trading 16% below its fair value of $337 – Trefis’ estimate for Microsoft’s valuationThe technology giant missed the consensus estimates in the fourth quarter of FY2022 (FY July-June). However, it still posted a 12% y-o-y increase in total revenues to $51.9 billion. The growth was driven by a 13% rise in productivity and business processes, a 20% jump in the intelligent cloud, and a modest 2% increase in the more personal computing revenues. The more personal computing segment suffered due to negative growth in Windows OEM (original equipment manufacturer) and lower Xbox content and services revenues. Overall, the firm reported a 2% rise in net income to $16.7 billion. It was because of a drop in operating margin from 41.4% to 39.6% due to the higher cost of revenues.

The company’s total revenues increased 18% y-o-y to $198.3 billion in FY 2022 driven by growth in each of the three segments. The productivity and business process segment grew 18% y-o-y, followed by a 25% rise in the intelligent cloud unit. Further, more personal computing revenues rose by 10% in the year. All in all, the above growth in the top-line translated into a net income of $72.7 billion – up 19% y-o-y.

Microsoft is likely to continue its growth momentum in the subsequent quarters. Notably, consensus estimates for Q1 FY2023 revenues and earnings are $49.91 billion and $2.34 respectively. Overall, Microsoft revenues are expected to touch $220.7 billion in FY2023. Additionally, MSFT’s net income margin is likely to remain around the same level as the last year. It will likely result in a net income of $80.8 billion and an annual EPS of $10.87. This coupled with a P/E multiple of 31x will lead to the valuation of $337.

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 Returns Aug 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MSFT Return 1% -16% 354%
 S&P 500 Return -1% -14% 83%
 Trefis Multi-Strategy Portfolio 1% -13% 245%

[1] Month-to-date and year-to-date as of 8/10/2022
[2] Cumulative total returns since the end of 2016

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