Microsoft Stock Topped The Expectations In Q1, What’s Next?

+29.76%
Upside
245
Market
318
Trefis
MSFT: Microsoft logo
MSFT
Microsoft

Microsoft’s stock (NASDAQ: MSFT) has lost approximately 35% YTD as compared to the 23% drop in the S&P500 index over the same period. Further, at its current price of $220 per share, it is trading 31% below its fair value of $318 – Trefis’ estimate for Microsoft’s valuationThe technology giant surpassed the consensus estimates in the first quarter of FY2023 (FY July-June). It posted an 11% y-o-y increase in total revenues to $50.1 billion, driven by a 9% growth in productivity & business processes and a 20% rise in the intelligent cloud units. The productivity & business process division benefited from higher office commercial products and LinkedIn revenues. Similarly, growth in the intelligent cloud segment was driven by Microsoft Azure and other cloud services. On the flip side, the more personal computing unit reported a marginal drop due to negative growth in Windows revenues. Overall, the net income was reduced by 14% y-o-y to $17.6 billion, because of a higher effective tax rate as compared to the previous year. Notably, the company received a one-time income tax benefit in the first quarter of FY 2022.

The company’s top line grew 18% y-o-y to $198.3 billion in FY 2022, translating into a net income of $72.7 billion – up 19% y-o-y. While the first quarter FY 2023 results were on similar lines, the firm expects the revenue growth rate to decrease in Q2 due to tough macroeconomic conditions. Notably, it has provided revenue guidance of $52.35-$53.35 billion, which suggests a low single-digit growth.

Overall, Microsoft revenues are expected to touch $212.6 billion in FY2023. Further, MSFT’s net income margin is likely to see a slight decrease. It will likely result in a net income of $76.3 billion and an annual EPS of $10.25. This coupled with a P/E multiple of 31x will lead to a valuation of $318.

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 Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 MSFT Return -5% -35% 254%
 S&P 500 Return -5% -23% 64%
 Trefis Multi-Strategy Portfolio -4% -25% 196%

[1] Month-to-date and year-to-date as of 11/3/2022
[2] Cumulative total returns since the end of 2016

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