Microsoft continues to expand its Subscription based Business

Microsoft (NASDAQ: MSFT) announced 2022 Q2 financial results on January 25th, 2022. According to the announcement, total revenue, operating income and net income were up 20%, 24% and 21%, respectively (GAAP, 3 months, YoY). Diluted EPS was up 22% (GAAP, 3 months, YoY). Service and other segment accounted for 63% of the total revenue. It was up about 6 points from 57% in 2021 Q2. This shows that Microsoft continues to expand its subscription-based business.

The estimated free cash flow (FCF) margin based on the 3-month results of 2022 Q2 was 26%. Thus, the total of revenue growth and FCF margin was over 40%. As of the end of 2022 Q2, the FCF was 34,609 million USD, up 39% from 2021 Q2. 

Looking at revenue trends by product, Azure and other cloud services recorded the highest growth of up 46%. This was followed by up 45% for Dynamics 365 and up 37% for LinkedIn. In addition, Search and news advertising excluding traffic acquisition costs showed a good performance with 32% growth.

Due to the recent rise in inflation rate and long-term interest rate, the U.S. stock market as a whole is heading toward instability. Under these circumstances, it is very important to select stocks whose net income, EPS, and free cash flow will continue to grow when considering the performance of our investment activities.

Microsoft’s financial results show that it is still in a good business environment despite they develop new business fields. Watanabe & Brothers’ Investment will continue to invest in Microsoft from long term perspectives.

Important Notice 

  1. Watanabe & Brothers’ Investment is holding shares of Microsoft Corporation.
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  3. Any opinions or statements expressed in this report are based on the author’s personal and subjective views, and are not the official views of the organization to which the author belongs.  In addition, although we have done our best efforts in making accurate assessments on the original financial statements, we cannot guarantee any complete accuracy of this report. We do not guarantee either that any future forecasts referred to in this report will certainly be realized. Investment in listed stocks, ETFs, etc. should be carried out under the responsibility of each investor, and even if the investor who read this report suffers a loss due to investment activities, Watanabe & Brothers’  Investment is not responsible for any liability.
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