Microsoft’s stock (NASDAQ: MSFT) has gained approximately 40% YTD as compared to the 19% rise in the S&P500 index over the same period. Further, at its current price of $336 per share, it is trading 3% below its fair value of $345 – Trefis’ estimate for Microsoft’s valuation. The technology giant surpassed the consensus estimates in the fourth quarter of FY2023 (FY July-June). It reported an 8% y-o-y increase in total revenues to $56.2 billion, driven by a 10% growth in the productivity & business processes segment and a 15% rise in the intelligent cloud unit. However, the top line was somewhat offset by a 4% drop in the more personal computing division. It was primarily due to a 12% decrease in the Windows OEM and a 20% decline in the devices revenues. On the cost front, the operating expenses as a % of revenues witnessed a favorable drop in the quarter, thanks to lower sales & marketing and research & development costs. Overall, this led to a 20% y-o-y improvement in the net income to $20.1 billion.
The company’s top line grew 7% y-o-y to $211.9 billion in FY 2023. It was due to a 9% rise in productivity & business process revenues, followed by a 17% growth in the intelligent cloud unit, partially offset by an 8% decrease in more personal computing division. On the flip side, the operating margin witnessed a slight drop in the year. This coupled with higher effective income tax as compared to 2022, resulted in a 1% drop in the net income to $72.4 billion.
Moving forward, we expect the Q1 2024 revenues to be on similar lines. Notably, the firm expects to record $53.8-$54.8 billion in revenues in Q1. Altogether, Microsoft revenues are estimated to touch $222.96 billion in FY2024. Additionally, MSFT’s net income margin is likely to see a slight improvement in the year. It will likely result in a net income of $77.8 billion and an annual GAAP EPS of $10.52. This coupled with a P/E multiple of just below 33x will lead to a valuation of $345.
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|S&P 500 Return||0%||19%||105%|
|Trefis Multi-Strategy Portfolio||0%||29%||314%|
 Month-to-date and year-to-date as of 8/1/2023
 Cumulative total returns since the end of 2016