What To Expect From Microsoft Stock In Q3?

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Microsoft (NASDAQ: MSFT) is scheduled to report its fiscal Q3 2023 results on Tuesday, April 25, 2023. We expect the revenues to top the consensus estimates and earnings to match (just above) the expectations. The company posted mixed results in the last quarter (FY July- June), with earnings beating the street consensus but revenues missing the mark. Its total revenues increased 2% y-o-y to $52.75 billion. It was driven by an 18% rise in the intelligent cloud segment, partially offset by negative growth in productivity & business processes and more personal computing businesses. We expect the same trend to continue in the third-quarter results.

Our forecast indicates that Microsoft’s valuation is $288 per share, which is at par with the current market price. 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 grew 6% y-o-y to $102.9 billion in the first half of FY 2023. 

  • The productivity & business processes revenues increased by 8% in the first two quarters. We expect the same trend to continue in Q3.
  • The intelligent cloud revenues rose by 19% over the same period driven by improvements in Azure and other cloud services revenues. We expect the Q3 results to be on similar lines.
  • More personal computing revenues decreased 11% y-o-y to $27.6 billion in the first half. It was primarily due to lower Windows and Xbox revenues. We expect the segment to see some improvement in Q3.
  • Overall, we forecast Microsoft’s revenues to touch $210.1 billion for FY2023.

Trefis estimates Microsoft’s fiscal Q3 2023 net revenues to be around $51.43 billion, slightly above the $51.02 billion consensus estimate. 

(2) EPS is likely to match (just above) the consensus estimates

Microsoft Q3 2023 adjusted earnings per share (EPS) is expected to be $2.25 per Trefis analysis, in line with the consensus estimate of $2.23. The company’s net income decreased 13% y-o-y to $34 billion in the first six months of FY2023. It was due to a higher effective tax rate as compared to the previous year. We expect the Q3 results to follow the same trend. Overall, Microsoft is likely to report an annual GAAP EPS of $9.68 for FY 2023. 

(3) Stock price estimate is at par with the current market price

We arrive at Microsoft’s valuation, using a GAAP EPS estimate of around $9.68 and a P/E multiple of just below 30x in fiscal 2023. This translates into a price of $288, which is just above the current market price. 

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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 Returns Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MSFT Return 0% 21% 405%
 S&P 500 Return 1% 8% 86%
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[1] Month-to-date and year-to-date as of 4/20/2023
[2] Cumulative total returns since the end of 2016

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