A BRIEF ANALYSIS OF MICROSOFT STOCK (MSFT)

Published: 12 June 2022 by Tela Equity Research analyst - telaadvisor

BUSINESS

Microsoft is a technology company whose mission is to empower every person and every organization on the planet to achieve more. Their platforms and tools help drive

• Small business productivity,
• Large business competitiveness, and
• Public-sector efficiency.

They also support new startups, improve educational and health outcomes, and empower human ingenuity.
They bring technology and products together into experiences and solutions that unlock value for our customers.
Furthermore, they develops, licenses, and supports software, services, devices, and solutions worldwide. As to date they are the world's leader in the design, development and marketing of operating systems and software programs for PC's and servers. The group also builds and sells computer equipment. Net sales break down by activity as follows:

• Sale of operating systems and application development tools (44.5%): primarily for servers (Azure, SQL Server, Windows Server, Visual Studio, System Center, GitHub, etc.) and (Windows);
• Development of cloud-based software applications (24.7%): programs for productivity (Microsoft 365; Word, Excel, PowerPoint, Outlook, OneNote, Publisher and Access), integrated management and customer relationship management (Dynamics 365), online file sharing and management (OneDrive), and unified and collaborative communications (Skype and Microsoft Teams);
• Sale of video gaming hardware and software (8.1%) : mainly Xbox;

• Enterprise services (4.5%);
• Sale of computers, tablets and accessories (4.5%);
• Other (13.7%).

​The United States account for 51.5% of net sales.
Since interception  1975, they develop and support software, services, devices, and solutions that deliver new value for customers and help people and businesses realize their full potential.
They offer an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and we provide solution support and consulting services. We also deliver relevant online advertising to a global audience.
 
Microsoft'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. We also design and sell devices, including PCs, tablets, gaming and entertainment consoles, other intelligent devices, and related accessories

Business Processe

​Their productivity and Business Processes segment consists of products and services in their portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. This segment primarily comprises:

• Office Commercial (Office 365 subscriptions, the Office 365 portion of Microsoft 365 Commercial subscriptions, and Office licensed on-premises), comprising Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business.
• Office Consumer, including Microsoft 365 Consumer subscriptions and Office licensed on-premises, and Office Consumer Services, including Skype, Outlook.com, and OneDrive.
• LinkedIn, including Talent Solutions, Marketing Solutions, Premium Subscriptions, Sales Solutions, and Learning Solutions.
• Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Customer Insights, Power Apps, and Power Automate; and on-premises ERP and CRM applications.

Dynamics provides cloud-based and on-premises business solutions for financial management, enterprise resource planning (“ERP”), customer relationship management (“CRM”), supply chain management, and other application development platforms for small and medium businesses, large organizations, and divisions of global enterprises. Dynamics revenue is driven by the number of users licensed and applications consumed, expansion of average revenue per user, and the continued shift to Dynamics 365, a unified set of cloud-based intelligent business applications, including Power Apps and Power Automate.

MICROSOF'T KEY DATA

The following tables provide a
summary of Microsoft Corp.  Income Statements
​

REVENUE vs NET INCOME [ 2018 - 2021 ]

WHAT DO THEY OFFER ?

Sales per business

MICROSOFT
TECHNICAL ANALYSIS
STOCK PRICES [ 2019  - SYS.DATE  ]

Microsoft's quarterly
historical stock prices

VALUATION

​PE vs Industry: MSFT is good value based on its Price-To-Earnings Ratio (26.41x)
​compared to the US Software industry average (38.6x).
 PE vs Market: MSFT is poor value based on its Price-To-Earnings Ratio (26.41x) compared to the US market (15.2x).

This valuation is based on level 1-3 investments methodology, therefore these controls include brief summary model validation, review of key model inputs, analysis of period-over-period fluctuations, and independent recalculation of prices where appropriate. Cash from operations increased $16.1 billion to $76.7 billion for fiscal year 2021, mainly due to an increase in cash received from customers, offset in part by an increase in cash paid to suppliers and employees. Cash used in financing increased $2.5 billion to $48.5 billion for fiscal year 2021, mainly due to a $4.4 billion increase in common stock repurchases and a $1.4 billion increase in dividends paid, offset in part by a $1.8 billion decrease in repayments of debt and a $1.7 billion decrease in cash premium paid on debt exchange. Cash used in investing increased $15.4 billion to $27.6 billion for fiscal year 2021, mainly due to a $6.4 billion increase in cash used for acquisitions of companies, net of cash acquired, and purchases of intangible and other assets, a $5.2 billion increase in additions to property and equipment, and a $4.1 billion decrease in cash from net investment purchases, sales, and maturities.

SHARE REPURCHASES

​During fiscal years 2021 and 2020, they repurchased 101 million shares and 126 million shares of their common stock for $23.0 billion and $19.7 billion, respectively, through our share repurchase programs. All repurchases were made using cash resources. 

DIVIDENDS

​Microsoft returned $10.4 billion to shareholders in the form of share repurchases and dividends in the fourth quarter of fiscal year 2021. Dividends paid out ratio 24.5 % of its earnings over the trailing twelve months.
Microsoft's last dividend payment date was on 2022-06-09 when Microsoft shareholders who owned MSFT shares before 2022-05-18 received a dividend payment of $0.6200 per share. Microsoft's next dividend payment date has not been announced yet.

MICROSOFT'S FINANCIAL HEALTH

Microsoft’s has more cash than its total debt, its debt is well covered by operating cash flow 174%. As to date June 2022 the world economy is embossed by the uncertainty of Russia/Ukraine war, rapidly inflation rises, world central banks are  hiking  interest rate to cool prices. In this type of market dynamics blue chip companies out to perform well then small cap that carries high debt ratio. Microsoft’s interest payments on its debt are well covered by EBIT 1260%x coverage,  therefore we can conclude Microsoft financial position is healthy

COMPETITORS

​Microsoft’s competitors’ range in size from diversified global companies with significant research and development resources to small, specialized firms whose narrower product lines may let them be more effective in deploying technical, marketing, and financial resources. Barriers to entry in many of Microsoft businesses are low and many of the areas in which they compete evolve rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services. Their ability to remain competitive depends on their success in making innovative products, devices, and services that appeal to businesses and consumers.
Competitors to Office include software and global application vendors, such as Apple, Cisco Systems, Facebook, Google, IBM, Okta, Proofpoint, Slack, Symantec, Zoom, and numerous web-based and mobile application competitors as well as local application developers. Apple distributes versions of its pre-installed application software, such as email and calendar products, through its PCs, tablets, and phones. Cisco Systems is using its position in enterprise communications equipment to grow its unified communications business. Google provides a hosted messaging and productivity suite. Slack provides teamwork and collaboration software. Zoom offers videoconferencing and cloud phone solutions. Skype for Business and Skype also compete with a variety of instant messaging, voice, and video communication providers, ranging from start-ups to established enterprises. Okta, Proofpoint, and Symantec provide security solutions across email security, information protection, identity, and governance. Web-based offerings competing with individual applications have also positioned themselves as alternatives to our products and services. We compete by providing powerful, flexible, secure, integrated industry-specific, and easy-to-use productivity and collaboration tools and services that create comprehensive solutions and work well with technologies our customers already have both on-premises or in the cloud.
 
LinkedIn faces competition from online professional networks, recruiting companies, talent management companies, and larger companies that are focusing on talent management and human resource services; job boards; traditional recruiting firms; and companies that provide learning and development products and services. Marketing Solutions competes with online and offline outlets that generate revenue from advertisers and marketers, and Sales Solutions competes with online and offline outlets for companies with lead generation and customer intelligence and insights.
Dynamics competes with cloud-based and on-premises business solution providers such as Oracle, Salesforce.com, and SAP.
Azure faces diverse competition from companies such as Amazon, Google, IBM, Oracle, VMware, and open source offerings. Our Enterprise Mobility + Security offerings also compete with products from a range of competitors including identity vendors, security solution vendors, and numerous other security point solution vendors. Azure’s competitive advantage includes enabling a hybrid cloud, allowing deployment of existing datacenters with our public cloud into a single, cohesive infrastructure, and the ability to run at a scale that meets the needs of businesses of all sizes and complexities. We believe our cloud’s global scale, coupled with our broad portfolio of identity and security solutions, allows us to effectively solve complex cybersecurity challenges for our customers and differentiates us from the competition.
 
Windows faces competition from various software products and from alternative platforms and devices, mainly from Apple and Google. We believe Windows competes effectively by giving customers choice, value, flexibility, security, an easy-to-use interface, and compatibility with a broad range of hardware and software applications, including those that enable productivity.

MANAGEMENT

How experienced are the management team and are they aligned to shareholders interests?
Average management tenure 6.8 years.
CEO – Satya Nadella (54 years young): have 8.2 years tenure, with a compensation of $49 858 280. Satya’s total compensation is above average for companies of similar size in the US market( $13.3Mill)
Mr. Satya Nadella is Chief Executive Officer and Director of Microsoft Corporation since February 2014 and has been its Chairman since June 2021. Before being named CEO in February 2014, he held leadership roles in both enterprise and consumer businesses across the Company. He has held various leadership positions at Microsoft since joining Microsoft in 1992, including Executive Vice President of Cloud and Enterprise from July 2013 to February 2014; President of Server and Tools from 2011 to 2013; Senior Vice President of Online Services Division from 2009 to 2011; and Senior Vice President of Search, Portal, and Advertising from 2008 to 2009.

Mr. Nadella’s roles also included Vice President of the Microsoft Business Division. Before joining Microsoft, he was a Member of the Technology Staff at Sun Microsystems. He has been a Director of Bravo Solution US, Inc.; and Starbucks Corp since March 22, 2017. He earned a bachelor’s degree in electrical engineering from Mangalore University, a master’s degree in computer science from the University of Wisconsin – Milwaukee and a master’s degree in business administration from the University of Chicago. ​He serves as a Trustee of Fred Hutchinson Cancer Research Center. Mr. Nadella served as a Director of Riverbed Technology, Inc

PERFORMANCE [2019 -2021] 

​OWNERSHIP STRUCTURE - WHO OWN MICROSOFT CORP. COMPANY ?

OWNERSHIP STRUCTURE

• Institutions: 72 %
• General Public: 27 %
• Individual Insiders: 0.08%

TOP SHAREHOLDERS ARE: 

CONCLUSSION

1. Do you understand the product or service offered by the company?
2. Will society still be using this product in 15 years?
3. Does the company have a MOAT?