Microsoft (NASDAQ: MSFT) is scheduled to report its fiscal Q1 2023 results on Tuesday, October 25, 2022 (after market close). We expect the stock to post mixed results, with revenues beating the consensus estimates but earnings missing the mark. The company underperformed the expectations in the fourth quarter of FY 2022 (FY July- June), despite a 12% y-o-y growth in total revenues. The top line primarily benefited from higher productivity & business processes and intelligent cloud revenues. However, the firm’s profitability numbers didn’t match the above growth – net income was up just 2% y-o-y, due to an unfavorable increase in the cost of revenues and higher research & development expenses. We expect the same trend to drive the first-quarter results.
Our forecast indicates that Microsoft’s valuation is $337 per share, which is 39% above the current market price of around $242. Our interactive dashboard analysis on Microsoft’s Earnings Preview has more details.
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(1) Revenues expected to beat the consensus estimates
Microsoft’s revenues increased 18% y-o-y to $198.3 billion in FY 2022 driven by growth in each of the three segments.
- The productivity & business processes revenues increased by 18% in the last fiscal year, primarily due to growth in Office 365 Commercial and LinkedIn. We expect the same trend to continue in Q1.
- The intelligent cloud segment grew 25% y-o-y last year, thanks to an increase in Azure and other cloud services revenues. We expect the first-quarter results to be on similar lines.
- More personal computing improved by 10% y-o-y in FY2022. We expect the segment to see positive growth in Q1.
- Overall, we estimate Microsoft’s revenues to touch $220.6 billion for FY2023.
Trefis estimates Microsoft’s fiscal Q1 2023 net revenues to be around $50.4 billion, slightly above the $49.7 billion consensus estimate.
(2) EPS is likely to miss the consensus estimates
Microsoft Q1 2023 adjusted earnings per share (EPS) is expected to be $2.27 per Trefis analysis, 2% below the consensus estimate of $2.31. The company’s net income increased 19% y-o-y to $72.7 billion in FY 2022. However, the operating margin suffered in Q4 and we expect the same trend to continue in the first quarter. Overall, Microsoft is expected to report an annual GAAP EPS of $10.87 for FY 2023.
(3) Stock price estimate is 39% above the current market price
We arrive at Microsoft’s valuation, using a GAAP EPS estimate of around $10.87 and a P/E multiple of 31x in fiscal 2023. This translates into $337, which is 39% more than the current market price of close to $242.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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