Microsoft (MSFT) Stock Acquisition Strategy To Pay Off Huge
Microsoft Q3 Earnings Overview
In this section, the speaker provides an overview of Microsoft's Q3 earnings results and discusses various aspects such as revenues, profits, cost control, cash flows, and acquisitions.
Revenues and Profits
- Microsoft reported Q3 revenues of $49.4 billion, a year-over-year increase of 18.5%.
- The company marginally beat revenue expectations by $350 million.
- However, they missed earnings expectations by 25 cents per share.
- It is important to consider currency fluctuations when analyzing the earnings figures.
Stock Performance and Guidance
- After reporting guidance on the conference call, Microsoft's stock price increased by nearly 5.3% in after-hours trading.
- The stock was initially trading at $270 but rose to around $284 per share after the guidance announcement.
Business Segments Performance
Productivity and Business Processes
- Q3 revenue for this segment was $15.8 billion, representing a 17% increase from the previous quarter.
- The upcoming quarter is expected to see further growth with revenue projected to be closer to $17 billion.
Intelligent Cloud
- Revenue for this segment in Q3 was $19.1 billion, showing a growth rate of 26%.
- The upcoming quarter is expected to witness even higher growth with revenue projected between $21.1 billion and $21.35 billion.
Personal Computing
- Q3 revenue for personal computing was $14.5 billion.
- The upcoming quarter is expected to show marginal growth with revenue projected between $14.65 billion and $14.95 billion.
- LinkedIn experienced high revenue growth in the most recent quarter but showed a slight decline compared to the previous year.
- Investors are still optimistic about its future prospects despite the slowdown.
Online Advertising Market
- The online advertising market is experiencing a flattening of growth rates.
- Microsoft's ad revenue growth was 20% in the most recent quarter, while market leaders like Google and Facebook are also seeing slower growth.
Financial Performance
- Microsoft's total revenue for the most recent quarter was $49.36 billion.
- Total cost of revenue was $15.6 billion, resulting in a gross profit of $33 billion.
- These figures demonstrate strong financial performance and high margins.
Financial Perspective
In this section, the speaker highlights Microsoft's impressive financial performance in terms of revenues and costs. They emphasize the significant increase in revenues over time and the high profitability of the company.
Revenue Growth
- Microsoft's total revenue for the most recent quarter was $49.36 billion, compared to $41.7 billion a year ago.
- On a nine-month basis, revenue increased from $121 billion to $146 billion.
Gross Profit
- With a gross profit of $33 billion from $49 billion worth of revenue, Microsoft demonstrates software-like margins that have contributed to its stock price growth.
Operating Income
- After accounting for research and development expenses, selling and marketing costs, and general administrative expenses, Microsoft maintains strong operating income.
This summary covers only a portion of the transcript provided.
Financial Performance Overview
This section provides an overview of Microsoft's financial performance.
Revenue and Net Income
- Microsoft generated $50 billion in revenue, with $20 billion flowing down to operating income.
- After taxes and other expenses, the net bottom line was $16.7 billion from $49 billion in revenue for the nine-month period.
- In the last three months alone, Microsoft had $146 billion in revenue, $62 billion in operating income, and $55 billion in net income.
Stock Performance
- Despite a slight decline from its highs in November and December of the previous year, Microsoft's stock performance remains strong.
- Compared to other stocks that have experienced significant declines (up to 80%) over the past year, Microsoft has held up well.
Balance Sheet Analysis
- While Microsoft's cash decreased from $130 billion to $104 billion over the last nine months, it still printed over $55 billion worth of net income during that period.
- Total current assets also decreased from $184 billion to $153 billion, but total assets increased from $333 billion to $344 billion due to a spike in goodwill from acquisitions.
Debt Management
- Current long-term debt decreased from $8 billion to $1.7 billion, indicating successful debt repayment efforts.
- Long-term debt also decreased slightly from $50 billion to $48 billion.
- Microsoft has favorable borrowing rates and could potentially borrow more money if needed.
Cash Flows
- Microsoft's cash flows paint a positive picture with impressive numbers.
- Cash flows from operations reached nearly identical levels as Google despite lower revenue figures ($49 billion vs. Google's approximately $68 billion).
- Over the past nine months, Microsoft generated a total of approximately $64 billon in positive cash flow.
Recent Acquisition and Cash Position
This section discusses Microsoft's recent acquisition and its impact on the company's cash position.
- Microsoft made a significant acquisition in the most recent quarter, spending $18.7 billion.
- In the previous year, they spent $8.4 billion on acquisitions over nine months.
- The specific acquisition mentioned is not the Activision Blizzard deal, which has not yet closed.
- The Nuance Communications deal was likely around $20 billion, including cash on Nuance's balance sheet.
- Microsoft's current cash position is set to decline further if the Activision Blizzard deal is approved, potentially reducing it by approximately $70 billion.
- It remains uncertain whether Microsoft will finance the deal through debt or equity raise.
The transcript does not provide information beyond this point.
Microsoft's Acquisition and Business Stability
This section discusses the financial stability of Microsoft and its ability to afford acquisitions. It also highlights the steady growth of Microsoft's various businesses.
Microsoft's Financial Position
- Microsoft is able to afford acquisitions due to its stable business model and consistent revenue generation.
- The company's diverse range of businesses, including Office 365, cloud services, LinkedIn, and advertising, contribute to its financial stability.
- Microsoft is well-positioned from a technical perspective.
Short-term Outlook
- The speaker personally bought Microsoft shares shortly before earnings were announced.
- In the shorter term, there may be some benefit from this trade.
- However, in the longer term, the stock is still in a downward channel.
Support and Resistance Levels
- The stock has found support around $270 multiple times during the year.
- This level acts as firm support for buyers.
- In the shorter term, there may be a bounce back up to the $300 range before potentially reversing again.
Long-term Outlook
- The best-case scenario is for Microsoft to trade sideways with support at $270 and resistance in the $300s.
- A break above $320 would likely lead to a return to all-time highs.
- An economic recovery would be necessary for Microsoft to surpass previous highs.
Investment Strategy
- Investing in Microsoft provides benefits such as dividend yield, revenue growth, buybacks, and potential market cap increase through acquisitions.
- The speaker suggests balancing their portfolio with a position in Microsoft due to these factors.
Future Growth Potential of Microsoft
This section focuses on the future growth potential of Microsoft and its strategic plans.
Market Cap Increase
- The speaker believes that Microsoft has the potential to increase its market cap from approximately two trillion dollars closer to two and a half or three trillion dollars in the next 24 months.
- Microsoft plans to utilize its balance sheet by reducing its cash balance through strategic activities.
Microsoft's Strategy
- The speaker appreciates Microsoft's strategy and believes it will take time to pay off.
- Accumulating Microsoft stock may be a good option as the company's acquisitions start to have an impact on growth rates and synergies.
Quarter Performance
- Microsoft had a pretty good quarter with relatively strong guidance.
- This performance should provide confidence when analyzing other companies like Apple and Facebook later in the week.
Conclusion
The transcript discusses Microsoft's financial stability, its ability to afford acquisitions, and its future growth potential. It highlights the support and resistance levels of the stock, as well as the investment strategy suggested by the speaker. Additionally, it mentions Microsoft's strategic plans for increasing market cap and their positive quarterly performance.