Microsoft reported results on Thursday 25th after the market closed. The company has done spectacularly over the past decade and financials have trended in the right direction. In this article, I’ll dive into the earnings results, management’s commentary, and my take on the quarter. Further, I’ll include what I’m doing portfolio-wise with the position.
Microsoft had sales of 61.85bn dollars, representing an increase of 17% on a yearly basis and exhibiting a 5yr CAGR of 15.1%. It is important to note that Activision contributed to 4pp of revenue growth. Satya has focused on generating sales on a subscription basis every since he joined. In consequence to the team’s efforts, Microsoft’s recurring revenue equated to 72% of the total.
During the quarter, Microsoft made 43.33bn in gross profit, up from last year’s 36.7bn. The respective margin stood at 70%, slightly above the comparable period. Operating income was 27.5bn, with a margin of 44.6%, up 240bps YoY. Activision was a 2pp drag to operating income growth. Lastly, the company reported 21.9bn in net income, at a margin of 35.4%, which expanded 100bps YoY.
Microsoft brought in a record 31.91bn in cash from operating activities, up from 24.4bn last year. I would highlight that a great part of this is explained by the increase in net income and a 2.5bn increase in D&A, reaching 6bn this Q. On the other hand, CapEx amounted to 10.95bn, the largest in Microsoft’s history.
The company derives revenue from their three different segments. During the quarter, Productivity and Business Processes contributed to 31.64% of total revenue, while Intelligent Cloud and More Personal Computing, 43.18% and 25.19% respectively.
At the operating level, contributions differ from the aforementioned. Intelligent Cloud held the largest share of operating income, at 45.4%. On the other hand, P&BP had a 36.8% share over total operating income, while MPC had 17.9%. Both charts illustrate how IC and P&BP have been taking share of the overall business.
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