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Category: Stock Market and Microsoft (MSFT)
Date: 27 January 2021 Stock Price of Microsoft (MSFT): $232.33 We take a look at the 2nd quarter earnings release of their 2021 fiscal year of Microsoft (MSFT), one of the most valuable technology companies in the world, with a market capital that is currently sitting at $1.76 trillion. For the quarter the group reported revenue of $43 billion and net income of $15.46 billion
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- What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry - Satya Nadella, chief executive officer of Microsoft. "
About Microsoft (MSFT)
Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. We strive to create local opportunity, growth, and impact in every country around the world. Our platforms and tools help drive small business productivity, large business competitiveness, and public-sector efficiency. They also support new startups, improve educational and health outcomes, and empower human ingenuity.
We continue to transform our business to lead in the new era of the intelligent cloud and intelligent edge. We bring technology and products together into experiences and solutions that unlock value for our customers. In this next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. Artificial intelligence (“AI”) capabilities are rapidly advancing, fueled by data and knowledge of the world. Physical and virtual worlds are coming together with the Internet of Things (“IoT”) and mixed reality to create richer experiences that understand the context surrounding people, the things they use, the places they go, and their activities and relationships. A person’s experience with technology spans a multitude of devices and has become increasingly more natural and multi-sensory with voice, ink, and gaze interactions.
We continue to transform our business to lead in the new era of the intelligent cloud and intelligent edge. We bring technology and products together into experiences and solutions that unlock value for our customers. In this next phase of innovation, computing is more powerful and ubiquitous from the cloud to the edge. Artificial intelligence (“AI”) capabilities are rapidly advancing, fueled by data and knowledge of the world. Physical and virtual worlds are coming together with the Internet of Things (“IoT”) and mixed reality to create richer experiences that understand the context surrounding people, the things they use, the places they go, and their activities and relationships. A person’s experience with technology spans a multitude of devices and has become increasingly more natural and multi-sensory with voice, ink, and gaze interactions.
Overview of Microsoft's 2nd quarter 2021 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Revenue: $43.04 billion (up from $36.9 billion from the same quarter of the previous year)
- Revenue increased by 16.6% over the last 12 months
- Cost of revenue : $14.14 billion (up from $12.36 billion for the same quarter of the previous year)
- Cost of revenue increased by 14.4% over the last 12 months
- Net income: $15.46 billion (up from $11.649 million for the same quarter of the previous year)
- Diluted earnings per share: $2.03 (up from $1.51 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 7.61 billion (down from 7.69 billion for the same quarter of the previous year)
- PE ratio of Microsoft (MSFT): 29
- Cash and cash equivalents: $14.4 billion
- Cash and cash equivalents per share: $1.89
- Cash and cash equivalents makes up 0.81% of Microsoft's current market capital
- Cash and cash equivalents makes up 4.7% of Microsoft's total assets
- Accounts receivable: $27.312 billion
- Accounts receivable makes up 8.9% of Microsoft total assets
- Total stockholders' equity of Microsoft: $130.236 billion
- Stockholders' equity per share: $17.11
- So Microsoft (MSFT) is trading at 13.6 times its stockholders equity per share which is WELL outside the expected range of between 2 and 5 times that most firms tend to trade at
- The average price to book value of firms in the S&P 500 is 4.2
Microsoft's management commentary on their 2nd quarter 2021 earnings
REDMOND, Wash. — January 26, 2021 — Microsoft Corp. today announced the following results for the quarter ended December 31, 2020, as compared to the corresponding period of last fiscal year:
“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” said Satya Nadella, chief executive officer of Microsoft. “Building their own digital capability is the new currency driving every organization’s resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”
“Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to benefit from our investments in strategic, high-growth areas.”
- Revenue was $43.1 billion and increased 17%
- Operating income was $17.9 billion and increased 29%
- Net income was $15.5 billion and increased 33%
- Diluted earnings per share was $2.03 and increased 34%
“What we have witnessed over the past year is the dawn of a second wave of digital transformation sweeping every company and every industry,” said Satya Nadella, chief executive officer of Microsoft. “Building their own digital capability is the new currency driving every organization’s resilience and growth. Microsoft is powering this shift with the world’s largest and most comprehensive cloud platform.”
“Accelerating demand for our differentiated offerings drove commercial cloud revenue to $16.7 billion, up 34% year over year,” said Amy Hood, executive vice president and chief financial officer of Microsoft. “We continue to benefit from our investments in strategic, high-growth areas.”
Business Highlights
Revenue in Productivity and Business Processes was $13.4 billion and increased 13% (up 11% in constant currency), with the following business highlights:
Revenue in Intelligent Cloud was $14.6 billion and increased 23% (up 22% in constant currency), with the following business highlights:
Revenue in More Personal Computing was $15.1 billion and increased 14% (up 13% in constant currency), with the following business highlights:
Microsoft returned $10 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2021, an increase of 18% compared to the second quarter of fiscal year 2020.
Business Outlook
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast
Responding to COVID-19
At Microsoft, our focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them do their best work while remote.
Revenue in Productivity and Business Processes was $13.4 billion and increased 13% (up 11% in constant currency), with the following business highlights:
- Office Commercial products and cloud services revenue increased 11% (up 9% in constant currency) driven by Office 365 Commercial revenue growth of 21% (up 20% in constant currency)
- Office Consumer products and cloud services revenue increased 7% (up 6% in constant currency) and Microsoft 365 Consumer subscribers increased to 47.5 million
- LinkedIn revenue increased 23% (up 22% in constant currency)
- Dynamics products and cloud services revenue increased 21% (up 18% in constant currency) driven by Dynamics 365 revenue growth of 39% (up 37% in constant currency)
Revenue in Intelligent Cloud was $14.6 billion and increased 23% (up 22% in constant currency), with the following business highlights:
- Server products and cloud services revenue increased 26% (up 24% in constant currency) driven by Azure revenue growth of 50% (up 48% in constant currency)
Revenue in More Personal Computing was $15.1 billion and increased 14% (up 13% in constant currency), with the following business highlights:
- Windows OEM revenue increased 1%
- Windows Commercial products and cloud services revenue increased 10% (up 8% in constant currency)
- Xbox content and services revenue increased 40% (up 38% in constant currency)
- Surface revenue increased 3% (up 1%in constant currency)
- Search advertising revenue excluding traffic acquisition costs increased 2% (up 1% in constant currency)
Microsoft returned $10 billion to shareholders in the form of share repurchases and dividends in the second quarter of fiscal year 2021, an increase of 18% compared to the second quarter of fiscal year 2020.
Business Outlook
Microsoft will provide forward-looking guidance in connection with this quarterly earnings announcement on its earnings conference call and webcast
Responding to COVID-19
At Microsoft, our focus remains on ensuring the safety of our employees, striving to protect the health and well-being of the communities in which we operate, and providing technology and resources to our customers and partners to help them do their best work while remote.
Microsoft (MSFT) stock price chart over the last 5 years
The image below shows the stock price history of Microsoft (MSFT) over the last 5 years. And its been a very good time for Microsoft stockholders with the stock increasing sharply by 341.3% over the last 5 years.
The stock of Microsoft is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Microsoft stock is positive at this point in time.
The stock of Microsoft is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Microsoft stock is positive at this point in time.
Microsoft (MSFT) stock vs Intel (INTC) stock performance over the last 5 years
The image below shows the stock price performance of Microsoft (MSFT) and Intel (INTC) over the last 5 years. Both of these firms are tech giants, but the returns provided by their respective stocks are very different. The summary below shows the returns provided by Microsoft and Intel over the lat 5 years.
The stock of Microsoft has easily outperformed that of Intel over the last 5 years.
- Microsoft: 343.1%
- Intel: 88.1%
The stock of Microsoft has easily outperformed that of Intel over the last 5 years.
Microsoft (MSFT) latest stock valuation
So what is Microsoft's stock worth? Based on their Q2 2021 earnings report our stock valuation model provides a target price for Microsoft at $183.60 a stock. We therefore believe that the stock of Microsoft is overvalued at its current price of $232.33
We usually recommend that long term and value investors look to enter a stock at least 10% below our target price which in this case is $183.60. A good entry point into the stock of Microsoft would therefore be at $165.40 or below.
We expect the stock of Microsoft (MFST) to pull back from its current price to levels closer to our target price in coming week and months. Since the stock of Microsoft is trading at well above our suggested entry point we rate the stock of Microsoft as a sell
We usually recommend that long term and value investors look to enter a stock at least 10% below our target price which in this case is $183.60. A good entry point into the stock of Microsoft would therefore be at $165.40 or below.
We expect the stock of Microsoft (MFST) to pull back from its current price to levels closer to our target price in coming week and months. Since the stock of Microsoft is trading at well above our suggested entry point we rate the stock of Microsoft as a sell
Next earnings release of Microsoft (MSFT)
It is expected that Microsoft will release their 3rd quarter 2021 earnings report in late April 2021