Equity report 28.10.21 Microsoft

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Microsoft (Ticker: MSFT)

Introduction

Microsoft Corporation is a technology company. The Company develops and supports a range of software products, services, devices, and solutions. The Company’s segments include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The Company’s products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; and video games. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, other intelligent devices, and related accessories. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services. It markets and distributes its products and services through original equipment manufacturers, direct, and distributors, and resellers.

Number of employees: 181 000 people.

Q1 2022

The first-quarter revenue was $45.3 billion, up 22% and 20% in constant currency. Earnings per share was $2.27, and increased 25% when adjusted for a net tax benefit of $3.3 billion.

Against the strong prior-year comparable, commercial bookings grew 11%. This quarter growth was impacted by fewer large long-term Azure contracts. As a result, commercial remaining performance obligation increased 28% to $137 billion. And the annuity mix increased two points YoY to 95%. Microsoft Cloud revenue grew 36% to $20.7 billion, ahead of expectations.

Microsoft Cloud’s gross margin percentage decreased slightly year over year to 71%.

Gross margin dollars increased 21%. The gross margin percentage was 70%. Operating expense increased 11%, lower than expected.

Operating income increased 27%, and operating margins expanded two points year over year to 45%. Operating margins expanded roughly four points YoY.

Now segment results. Revenue from productivity and business processes was $15 billion and grew 22% with better-than-expected performance in Office commercial and LinkedIn.

Office commercial revenue grew 18%, Office 365 commercial revenue grew 23%

Over the past two years, Microsoft 365 subscriber base has grown over 50%, reaching $54.1 million this quarter. And in LinkedIn, revenue increased 42%, with continued strength in marketing solutions and better-than-expected performance in talent solutions from the improved job market noted earlier.

The gross margin percentage increased roughly two points, driven by improvement across all cloud services. Operating expenses increased 7%, and operating income increased 33%.

Next, the intelligent cloud segment. Revenue was $17 billion, increasing 31%, ahead of expectations. Overall, server products and cloud services revenue increased 35%

Azure and other cloud services grew 50%, ahead of expectations, driven by consumption-based services.

Now to more personal computing. Revenue was $13.3 billion, increasing 12%, with better-than-expected performance in Windows OEM and gaming.

And in gaming, revenue increased 16%, ahead of expectations. Better-than-expected console supply, and continued strong demand resulted in Xbox hardware revenue growth of 166%. Xbox content and services revenue increased 2% and were relatively unchanged against a strong prior-year comparable. Segment gross margin dollars increased 10%.

Now, back to total company results. Capital expenditures, including finance leases, were $7.4 billion, in line with expectations, and cash paid for PP&E was $5.8 billion.

Capital investments, including both new data center regions and expansion in existing regions, continue to be based on significant customer demand and usage signals. Cash flow from operations was $24.5 billion, increasing 27% YoY, driven by strong cloud billings and collections. Free cash flow was $18.7 billion, up 30% YoY. Q1 2022, other income and expense were $286 million, higher than anticipated, primarily driven by net gains on investments.

The effective tax rate was approximately 16%. And finally, they returned $10.9 billion to shareholders through share repurchases and dividends

Nuance acquisition is expected to be closed by the end of Q2 or early Q3.

Q2 2022. In commercial business, differentiated market position, compelling solution portfolio, and consistent execution should drive another strong quarter.

They expected  COGS of $17 billion to $17.2 billion and operating expenses of $12.7 billion to $12.8 billion. In other income and expense, interest income and expense should offset each other. And finally, they expected Q2 effective tax rate to be approximately 17%.

SHARE PRICE – In 2021, the stock up by 49,6%. The share price (28/10/2021) closed at $324.25 per share.

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