Case Study on Microsoft (MSFT) with Nobias technology
Microsoft (MSFT) reported its fourth quarter results for its fiscal 2022 year on Tuesday of this week. Since then, MSFT shares have rallied $251.90 to the $276.00 range. This 9.5% rally comes on the heels of an earnings report where the company missed consensus estimates on both the top and bottom lines. Yet, it appears that the market has been more focused on Microsoft’s bullish guidance, as opposed to the disappointing results that the company posted during the fourth quarter. And, despite several credible analysts lowering their price target for MSFT shares, the credible analysts community that Nobias tracks remains very bullish. 100% of credible analysts that the Nobias algorithm tracks see further upside ahead. Their average price target implies upside potential north of 20%.
Kareem Anderson, a Nobiad 5-star rated author, broke down Microsoft’s quarterly results in a report published at OnMSFT.com. Anderson said, “Microsoft fell just shy of its projections for FY22 Q4, hauling in $51.9B in total revenue and $16.7B in net income on $20.5B in operating income. The diluted earnings per share for investors comes in at $2.23 which represents a 3% increase year over year.” He quickly noted that “This is the first time since 2016 Microsoft failed to meet or exceed its own earnings projections.”
MSFT Jul 2022
Anderson touched upon the operating results from each of MSFT’s major business segments. Regarding Productivity and Business segment, Anderson highlighted the following metrics:
Office Commercial products and cloud services revenue increased 9% driven by Office 365 Commercial revenue growth of 15%
Office Consumer products and cloud services revenue increased 9% and Microsoft 365 Consumer subscribers grew to 59.7 million
LinkedIn revenue increased 26%
Dynamics products and cloud services revenue increased 19% driven by Dynamics 365 revenue growth of 31%
Moving onto Microsoft’s Intelligent Cloud business, Anderson stated, “Server products and cloud services revenue increased 22% driven by Azure and other cloud services revenue growth of 40%”.
And, looking at MSFT’s Personal Computing date, he highlighted the following metrics:
Windows OEM revenue decreased 2%
Windows Commercial products and cloud services revenue increased 6%
Xbox content and services revenue decreased 6%
Search and news advertising revenue excluding traffic acquisition costs increased 18%
Surface revenue increased 10%
Anderson also touched upon MSFT’s shareholder returns during its most recent quarter, writing, “Despite the doom-and-gloomish headlines, Microsoft managed to return $12.4B back to shareholders for the quarter through dividends and repurchases of stocks, which represents an increase on its buyback programs year over year.”
Looking at the risks that the company faces moving forward, he said, “Microsoft warns of increased cloud computing competition, potential government litigation and regulatory activity could pose disruption in next quarter for the company.”
Anderson concluded his piece on a bullish note, saying, “On the positive side, Microsoft's search efforts continue to quietly improve, as the advertising business chalks up another 18% of growth year over year (missing the projected 20%), and that's heading into the big Netflix partnership which see that revenue total increase over time.
Sweta Killa, a Nobias 5-star rated author, also covered MSFT’s Q4 miss in an article published at Yahoo Finance. Killa noted that MSFT’s $2.23 earnings-per-share figure “represents the lowest earnings growth in two years.”
Nobias 4-star rated author, Patrick Seitz, covered MSFT’s Q4 report in an article at Investors.com and in his piece, Seitz highlighted several of the near-term headwinds that MSFT faced during the quarter which contributed to the consensus miss.
Regarding MSFT’s Q4 headwinds, Seitz wrote, “Unfavorable foreign exchange rates lowered Microsoft's revenue by $595 million and cut earnings per share by 4 cents in the June quarter, the company said in a news release.” He continued, “Also, Covid-related production shutdowns in China and a deteriorating PC market lowered its Windows software revenue by more than $300 million from the company's target.”
Regarding the macro economy, Seitz stated, “Reduced advertising spending negatively impacted Microsoft's LinkedIn, search and news advertising revenue by over $100 million”. Lastly, he touched upon ongoing geopolitical issues, writing, “Plus, Microsoft took a hit from scaling down its operations in Russia because of that country's war with Ukraine.”
Seitz quoted Microsoft’s Chief Financial Officer, Amy Hood, who looked past the company’s near-term headwinds to focus on longer-term growth prospects, during the company’s quarterly conference call. "We continue to expect double-digit revenue and operating income growth in both constant currency and U.S. dollars," Hood said.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
"Revenue growth (in fiscal 2023) will be driven by continued momentum in our commercial business and a focus on share gains across our portfolio,” she continued. This bullish longer-term outlook appears to be key to the rally that MSFT shares have experienced since the Q4 miss.
Killa touched upon this, stating that while MSFT’s disappointing Q4 results “ended its long track of beating estimates by missing on both earnings and revenues,” the company “issued an optimistic growth forecast.” Killa continued, “Following the solid guidance, shares of MSFT jumped as much as 6% in after-market trading on an elevated volume.”
The credible analysts that Nobias tracks appear to agree with the positive direction that MSFT shares have embarked upon in recent days. Right now, 100% of the credible analysts that Nobias tracks who have a price target for MSFT shares (17/17) believe that the stock will continue to head higher. The average price target that these credible analysts have for MSFT shares is currently $330. Today, MSFT trades for $280. Therefore, relative to the current share price, that consensus credible price target of $330 implies upside potential of approximately 20%.
Disclosure: Nicholas Ward is long MSFT. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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