Microsoft (NASDAQ: MSFT) is scheduled to report its fiscal Q2 2023 results on Tuesday, January 24, 2023. We expect the stock to top the consensus estimates of revenues and earnings. The company outperformed the street expectations in the first quarter of FY 2023 (FY July- June), with total revenues increasing by 11% y-o-y to $50.1 billion. It was driven by a 9% rise in productivity & business processes and a 20% growth in the intelligent cloud segments, partially offset by a slight decrease in the more personal computing business. We expect the same trend to continue in the second-quarter results.
Our forecast indicates that Microsoft’s valuation is $318 per share, which is 35% above the current market price of around $236. Our interactive dashboard analysis on Microsoft’s Earnings Preview has more details.
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(1) Revenues expected to edge past the consensus estimates
Microsoft’s revenues increased 18% y-o-y to $198.3 billion in FY 2022. Further, the same trend continued in the first quarter of FY2023.
- The productivity & business processes revenues rose by 18% in the last fiscal year. Further, it increased 9% y-o-y to $16.5 billion in Q1 FY2023, thanks to growth in Office 365 Commercial and LinkedIn categories. We expect the same trend to continue in Q2.
- The intelligent cloud revenues increased 25% last year, and 20% in the first quarter of FY2023. We expect the growth momentum to continue in Q2.
- Although more personal computing revenues improved in FY2022, it witnessed a slight drop in the first quarter of FY2023 due to lower Windows revenues. We expect the second quarter results to be on similar lines.
- Overall, we forecast Microsoft’s revenues to touch $212.6 billion for FY2023.
Trefis estimates Microsoft’s fiscal Q2 2023 net revenues to be around $53.65 billion, slightly above the $52.99 billion consensus estimate.
The technology companies are finding it difficult to maintain the high growth rate seen during the pandemic. Further, the tough macroeconomic conditions have added to their woes, and Microsoft is no exception. It recently announced its intention to layoff ten thousand workers to better align the cost structure with revenues.
(2) EPS is likely to beat the consensus estimates
Microsoft Q2 2023 adjusted earnings per share (EPS) is expected to be $2.37 per Trefis analysis, 3% above the consensus estimate of $2.31. The company’s net income decreased 14% y-o-y to $17.56 billion in the first quarter of FY2023. It was due to a higher effective tax rate as compared to the previous year. Further, we expect the earnings to see a year-on-year decline in Q2 due to higher expenses as a % of revenues. Overall, Microsoft is likely to report an annual GAAP EPS of $10.25 for FY 2023.
(3) Stock price estimate is 35% above the current market price
We arrive at Microsoft’s valuation, using a GAAP EPS estimate of around $10.25 and a P/E multiple of 31x in fiscal 2023. This translates into a price of $318, which is 35% more than the current market price of close to $236.
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
|S&P 500 Return||2%||2%||75%|
|Trefis Multi-Strategy Portfolio||7%||7%||237%|
 Month-to-date and year-to-date as of 1/19/2023
 Cumulative total returns since the end of 2016