Microsoft (MSFT) earnings report for their 3rd quarter of their 2020 fiscal year
Category: Stock Market and Microsoft (MSFT)
Date: 23 June 2020 Stock Price of Microsoft : $200.57 We take a look at the 3rd quarter earnings release of their 2020 fiscal year of Microsoft (MSFT), one of the most valuable technology companies in the world, with a market capital that is currently sitting at $1.52 trillion
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- We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security"
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 3rd quarter 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Revenue: $328.167 million (up from $121.988 million from the same quarter of the previous year)
- Revenue increased by 169% over the last 12 months
- Cost of revenue : $103.707 million (up from $24.104 million for the same quarter of the previous year)
- Cost of revenue increased by 330% over the last 12 months
- Net income: $27.075 million (down from from $2.214 million for the same quarter of the previous year)
- Diluted earnings per share:$0.09 (up from $0 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 295.184 million (up from 136.428 million for the same quarter of the previous year)
- PE ratio of Zoom: 678
- Cash and cash equivalents: $483.653 million
- Cash and cash equivalents per share: $1.63
- Cash and cash equivalents makes up 0.65% of Zoom's current market capital
- Cash and cash equivalents makes up 23.6% of Zoom's total assets
- Accounts receivable: $164.191 million
- Accounts receivable makes up 7.9% of Zoom's total assets
- Total stockholders' equity of Zoom: $901 million
- Stockholders' equity per share: $3.05
- So Zoom (ZM) is trading at 82.6 times its stockholders equity per share which is WELL outside the expected range of between 2 and 4 times that most firms tend to trade at
- The average price to book value of firms in the S&P 500 is 3.7
Microsoft's management commentary on their 3rd quarter 2020 earnings
REDMOND, Wash. — April 29, 2020 — Microsoft Corp. today announced the following results for the quarter ended March 31, 2020, as compared to the corresponding period of last fiscal year:
“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft. “Our durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”
“In this dynamic environment, our sales teams and partners executed a solid third quarter, with Commercial Cloud revenue generating $13.3 billion, up 39% year over year," said Amy Hood, executive vice president and chief financial officer of Microsoft. “We remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”
“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft. “Our durable business model, diversified portfolio, and differentiated technology stack position us well for what’s ahead.”
“In this dynamic environment, our sales teams and partners executed a solid third quarter, with Commercial Cloud revenue generating $13.3 billion, up 39% year over year," said Amy Hood, executive vice president and chief financial officer of Microsoft. “We remain committed to balancing operational discipline with continued investments in key strategic areas to drive future growth.”
COVID-19 Impact
In the third quarter of fiscal year 2020, COVID-19 had minimal net impact on the total company revenue.
In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage increased, particularly in Microsoft 365 including Teams, Azure, Windows Virtual Desktop, advanced security solutions, and Power Platform, as customers shifted to work and learn from home. In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in advertising spend in LinkedIn.
In the More Personal Computing segment, Windows OEM and Surface benefited from increased demand to support remote work and learn scenarios, offset in part by supply chain constraints in China that improved late in the quarter. Gaming benefited from increased engagement following stay-at-home guidelines. Search was negatively impacted by reductions in advertising spend, particularly in the industries most impacted by COVID-19. The effects of COVID-19 may not be fully reflected in the financial results until future periods.
In the third quarter of fiscal year 2020, COVID-19 had minimal net impact on the total company revenue.
In the Productivity and Business Processes and Intelligent Cloud segments, cloud usage increased, particularly in Microsoft 365 including Teams, Azure, Windows Virtual Desktop, advanced security solutions, and Power Platform, as customers shifted to work and learn from home. In the final weeks of the quarter, there was a slowdown in transactional licensing, particularly in small and medium businesses, and a reduction in advertising spend in LinkedIn.
In the More Personal Computing segment, Windows OEM and Surface benefited from increased demand to support remote work and learn scenarios, offset in part by supply chain constraints in China that improved late in the quarter. Gaming benefited from increased engagement following stay-at-home guidelines. Search was negatively impacted by reductions in advertising spend, particularly in the industries most impacted by COVID-19. The effects of COVID-19 may not be fully reflected in the financial results until future periods.
Microsoft (NASDAQ:MSFT) stock price history
The image below shows the stock price history of Microsoft (MSFT) over the last 5 years. It's been an amazing time for Microsoft stockholders. 5 years ago the stock of Microsoft was trading at $45.26 a stock and its currently trading at $200.57 a stock. Thats a whopping 343% return provided to Microsoft stockholders over the last 5 years.
The stock of Microsoft is trading at a lot closer to its 52 week high of $200.76 than it its to its 52 week low of $130.78 which to us is a clear indication that the short term sentiment and momentum towards Microsoft's stock is very positive at this point in time.
The stock of Microsoft is trading at a lot closer to its 52 week high of $200.76 than it its to its 52 week low of $130.78 which to us is a clear indication that the short term sentiment and momentum towards Microsoft's stock is very positive at this point in time.
Recent coverage of Microsoft (MSFT)
The extract below discusses whether one should pick Netflix above Microsoft, as obtained from Forbes.com
Microsoft stock (NASDAQ: MSFT) has rallied by about 130% since the beginning of 2018, slightly outpacing Netflix stock (NASDAQ: NFLX) which is up by about 120% over the same period. That’s good for Microsoft, but is it justified? We don’t think it is, due to a couple of reasons. Firstly, Netflix’s revenue growth rate was over 2x Microsoft’s between 2017 and 2019 (72% vs. 30%). Secondly, while Microsoft’s margins are thicker, with Net Margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) standing at about 31% in FY’19, Netflix has been making solid progress improving its margins (net margins roughly doubled from 4.8% to 9.3% over the last two years). Our dashboard Netflix vs. Microsoft: Does The Stock Price Movement Make Sense? has the underlying numbers behind our belief that Netflix is likely the stronger investment presently, compared to Microsoft.
How Do The Core Businesses For Netflix And Microsoft Compare?
Let’s look at the core business prospects of the two companies a little more closely. Netflix has become a force to reckon with in the streaming video space, and the company has been seeing higher demand for its services as people are confined to their homes due to Coronavirus related lockdowns. For example, over Q1’20, the company delivered global net subscriber additions of 15.8 million, double the Wall Street consensus of roughly 8 million. Microsoft is also benefiting from the pandemic, with demand for its Azure cloud solutions likely to rise as more business moves online. The company will also gain from the work-from-home trend, as companies invest in productivity and collaboration software to empower their increasingly distributed workforces.
Read the full article here.
Microsoft stock (NASDAQ: MSFT) has rallied by about 130% since the beginning of 2018, slightly outpacing Netflix stock (NASDAQ: NFLX) which is up by about 120% over the same period. That’s good for Microsoft, but is it justified? We don’t think it is, due to a couple of reasons. Firstly, Netflix’s revenue growth rate was over 2x Microsoft’s between 2017 and 2019 (72% vs. 30%). Secondly, while Microsoft’s margins are thicker, with Net Margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) standing at about 31% in FY’19, Netflix has been making solid progress improving its margins (net margins roughly doubled from 4.8% to 9.3% over the last two years). Our dashboard Netflix vs. Microsoft: Does The Stock Price Movement Make Sense? has the underlying numbers behind our belief that Netflix is likely the stronger investment presently, compared to Microsoft.
How Do The Core Businesses For Netflix And Microsoft Compare?
Let’s look at the core business prospects of the two companies a little more closely. Netflix has become a force to reckon with in the streaming video space, and the company has been seeing higher demand for its services as people are confined to their homes due to Coronavirus related lockdowns. For example, over Q1’20, the company delivered global net subscriber additions of 15.8 million, double the Wall Street consensus of roughly 8 million. Microsoft is also benefiting from the pandemic, with demand for its Azure cloud solutions likely to rise as more business moves online. The company will also gain from the work-from-home trend, as companies invest in productivity and collaboration software to empower their increasingly distributed workforces.
Read the full article here.
Microsoft (MSFT) stock vs Netflix (NFLX) stock
The image below shows the stock price performance of Microsoft (MSFT) and Netflix (NFLX) over the last 3 years. While the stockholders of Netflix have had the far more volatile ride than the stockholders of Microsoft, over the three year period the returns of the two firms are very similar. Over the last 3 years the stock of Microsoft increased by 186.6% compared to the return of 206.6% provided by Netflix. So over the last three years the stock of Netflix has slightly outperformed that of Microsoft, even though it has been the far more volatile ride along the way.
Microsoft (NASDAQ:MSFT) latest stock valuation
So what is Microsoft's stock worth? Based on their Q3 2020 earnings report our stock valuation model provides a target price for Microsoft at $176.20 a stock. We therefore believe that the stock of Microsoft is overvalued at its current price of $200.57.
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 $176.20. A good entry point into the stock of Microsoft would therefore be at $158.60 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.
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 $176.20. A good entry point into the stock of Microsoft would therefore be at $158.60 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.
Next earnings release of Microsoft (MSFT)
It is expected that Microsoft will release their 4th quarter 2020 earnings report in late July 2020