Microsoft Corporation (NASDAQ: MSFT) announced its 2022 Q4 financial results on July 26, 2022. According to the announcement, total revenue, operating income and net income were up 18%, up 19% and up 19%, respectively (YoY, GAAP, TTM). In this regard, product revenue was up 2%, while service and other revenue was up 29% (YoY, TTM). Service and other revenue accounts for 63% of the total revenue (TTM). In addition, net cash from operations was up 16% while free cash flow (FCF) was up 7% (YoY, TTM). Moreover, the FCF margin recorded 15%.
In these days, Microsoft’s PSR is generally around 10. Thus, it cannot be said that the stock price level is excessive at this moment. Microsoft has the higher growth rate in service and other revenue, with subscription revenue at over 65% of the total revenue in 2022 Q4 alone. We believe that the shift from the product business to the service business would significantly improve the cash flow of Microsoft. This would bring the significant improvements of Microsoft’s overall financial structure.
Reviewing by product, Azure and other cloud services revenue showed the highest growth of up 40% (3 months, YoY). It was followed by Dynamics 365 of up 31%. In contrast, the lowest growth was Xbox content and services of down 6%.
In Microsoft, cloud-based and AI-based businesses maintain high revenue growth potential. These businesses have fewer needs for additional fixed asset investment in addition to the initial investment. Once these businesses achieve surplus, it is possible that segment income increases significantly.
Watanabe & Brothers’ Investment will continue to invest in Microsoft Corporation.
Microsoft Corporation (NASDAQ: MSFT) Stock Chart
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