October 28, 2021 8:00 AM
 — 
3
 min

We raise the company's valuation based on excellent quarterly results

buy

Microsoft posted excellent results for its first fiscal quarter, which ended in September. We were impressed by Microsoft's financial statements, so we revised our valuation of the company upwards from $ 320 to $ 360 per share. Microsoft's revenue increased 22% yoy to $ 45.3 billion, better than market expectations of $ 44 billion. Net income soared 48% yoy to a record $ 20.5 billion, up from $ 13.89 billion in the same period last financial year. Net income exceeded the previous record, set a quarter earlier, by more than $ 4 billion. Net earnings per share in July-September rose to $ 2.71 from $ 1.82 a year earlier against the market forecast of $ 2.08. The press release notes that quarterly earnings were positively impacted by a one-off effect from the return of a part of intellectual property worth $ 3.3 billion. Without this factor, earnings per share would have been $ 2.27, which is also significantly higher than market expectations.

TIKR:
MSFT

PRICE:
$325

TARGET PRICE:
$360

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The substantial improvement in financial performance was made possible by growth in cloud revenue, which jumped 36% year-on-year in the last quarter to $ 20.7 billion, surpassing the $ 20 billion mark for the first time. Azure service and server software business rose 31% to $ 17 billion. Azure revenue jumped an impressive 50% year-on-year. Division Productivity and Business Processes, which develops the suite of Office applications, increased revenue by 22% - to $ 15 billion This division includes the social network LinkedIn, its revenue grew by 42%. More Personal Computing revenue, which also includes the Windows operating system, Xbox game consoles and Surface devices, rose 12% to $ 13.3 billion, while revenue from sales of Surface tablets fell 17%, games and consoles increased by negligible 2%.

Microsoft has a unique business model and a highly sought-after product line. We consider Microsoft to be one of the best high-tech companies that can significantly benefit from the growing demand for cloud services and cybersecurity services. Technological excellence should help Microsoft become the leading hybrid cloud company and capitalize on the digitalization of corporate infrastructure as more enterprises seek to modernize their IT assets and move to cloud services. We believe that Azure cloud services will remain the main driver of business growth in the long term. In the past quarter, Microsoft returned $ 10.9 billion to shareholders in the form of dividend payments and buybacks of its shares, which is 14% more than the amount spent for these purposes in the same period last year.

Microsoft is one of the world's leading technology companies. Since 1975, it has been developing, manufacturing, licensing, selling and providing software support for a variety of computing hardware, mobile devices and game consoles. Among the most famous products of the company, it is worth noting the Windows operating system and the Office software suite, as well as Azure cloud services. The only competitor to the Xbox game console is Sony PlayStation. The company also manufactures mobile phones, tablets and digital music entertainment devices. Microsoft owns LinkedIn, a social network that helps millions of users to establish business contacts. Microsoft customers include both individuals and corporate customers, as well as government agencies. Almost half of the corporation's revenue is generated within the United States.

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