Should you buy Microsoft stock?
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Microsoft just reported second quarter earnings. Revenue increased 2% to 52.7 billion year over year while net income decreased 12% to 16.4 billion.
Based on the latest share price Microsoft has a market cap of 1.8 trillion. With 100 billion of cash and 44 billion of long term debt the enterprise value is roughly 1.74 trillion.
Revenue over the last 12 months is 204 billion with net income of 67 billion and 9 dollars earnings per share.
That gives the company an expensive valuation of 8.5 times revenue or 27 times earnings.
Historical revenue growth, meanwhile, is clocking 11% over the past ten years and EPS growth is roughly 18%.
Breaking out the earnings report you can see that the real bright spot is Microsoft cloud. Cloud revenue was up 22% to 27.1 billion meaning cloud run rate revenues are now over $100 billion a year and the most important part of Microsoft's business.
But again, we are seeing deceleration in some areas.
And here’s an interesting chart which shows how slowing growth has been gradually spreading across segments over the last few quarters.
None of this is surprising, of course. Microsoft is exposed to higher operating costs like almost everyone else so it will face the same pressures on growth.
On the plus side, the company has a staggering amount of cash and its invested at least 10 billion in OpenAI, the company behind Chat GPT. This is no doubt a smart move and could help the business gain market share in online search and cloud computing.
But, trading at the multiple of 8 times revenue and 27 times earnings, Microsoft is already pricing in a significant amount of growth.
#stocks #investing #microsoftstock #valueinvesting
Microsoft just reported second quarter earnings. Revenue increased 2% to 52.7 billion year over year while net income decreased 12% to 16.4 billion.
Based on the latest share price Microsoft has a market cap of 1.8 trillion. With 100 billion of cash and 44 billion of long term debt the enterprise value is roughly 1.74 trillion.
Revenue over the last 12 months is 204 billion with net income of 67 billion and 9 dollars earnings per share.
That gives the company an expensive valuation of 8.5 times revenue or 27 times earnings.
Historical revenue growth, meanwhile, is clocking 11% over the past ten years and EPS growth is roughly 18%.
Breaking out the earnings report you can see that the real bright spot is Microsoft cloud. Cloud revenue was up 22% to 27.1 billion meaning cloud run rate revenues are now over $100 billion a year and the most important part of Microsoft's business.
But again, we are seeing deceleration in some areas.
And here’s an interesting chart which shows how slowing growth has been gradually spreading across segments over the last few quarters.
None of this is surprising, of course. Microsoft is exposed to higher operating costs like almost everyone else so it will face the same pressures on growth.
On the plus side, the company has a staggering amount of cash and its invested at least 10 billion in OpenAI, the company behind Chat GPT. This is no doubt a smart move and could help the business gain market share in online search and cloud computing.
But, trading at the multiple of 8 times revenue and 27 times earnings, Microsoft is already pricing in a significant amount of growth.
#stocks #investing #microsoftstock #valueinvesting
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NewsTranscript
00:00 Should you buy Microsoft stock, ticker symbol MSFT, Microsoft just reported second quarter
00:06 earnings, revenue increased 2% to $52.7 billion and net income decreased 12% to $16.4 billion
00:14 year over year.
00:16 Based on the latest share price, Microsoft has a market cap of $1.8 trillion. With $100
00:21 billion of cash and $44 billion of long term debt, the enterprise value is roughly $1.74
00:26 trillion. Revenue over the last 12 months is $204 billion with net income of $67 billion
00:32 and $9 earnings per share that gives the company an expensive valuation of 8.5 times revenue
00:38 or 27 times earnings. Historical revenue growth meanwhile is clocking 11% over the past 10 years
00:44 and EPS growth is roughly 18%. Breaking out the earnings report, you can see that the real bright
00:50 spot is Microsoft Cloud. Cloud revenue was up 22% to $27 billion meaning cloud run rate revenues
00:56 are now over $100 billion. So cloud is now the most important part of Microsoft's business.
01:02 But again we are seeing deceleration in some areas and here's an interesting chart which
01:06 shows how slowing growth has been gradually spreading across segments over the last few
01:11 quarters. None of this is surprising of course Microsoft is exposed to higher operating costs
01:17 like almost everyone else so it's going to face the same pressures. On the plus side,
01:21 the company has a staggering amount of cash and it's invested at least $10 billion into OpenAI,
01:26 the company behind ChatGPT. This is no doubt a smart move and could help the business gain
01:31 market share in areas such as online search and cloud computing. But trading at the multiple of
01:38 8 times revenue and 27 times earnings, Microsoft is already pricing in a significant amount of
01:43 growth. Let's assume with the help of buybacks Microsoft can grow earnings per share at 15%
01:49 per year for the next 10 years, slightly lower than the historical average. Then assume the
01:53 stock trades at 25 times those earnings at the end of those 10 years. The company would be worth a
01:58 whopping $6.7 trillion in 10 years time. Including dividends that works out to an investment return
02:04 of 14.8% per year. That's a good return but there's not much margin for error and Microsoft's
02:09 size could make it hard to hit those numbers. So I'm going to give the company a neutral rating as
02:14 it looks pretty fairly valued. But these are my personal opinions not financial advice
02:19 and I've got no position in Microsoft's stock.