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Over the years, Microsoft Corporation (NASDAQ: MSFT ) has continuously diversified its portfolio, a strategy that has helped it effectively overcome weaknesses in certain areas like its core PC software business. The company, which has a strong presence in most major markets around the world, experienced a slowdown last year, mainly due to inflationary pressures and rising costs.
Buy It?
The company’s stock hit its highest value more than a year ago after steady gains, in one of the best winning streaks the market has seen. But then came the tech selloff, and Microsoft did not survive – this week, MSFT traded at the lowest level in about two years and well below the 52-week average. Like the board market, technology companies have faced a number of challenges over the past few years, but they are not specific to the companies or industries they represent. Meanwhile, stocks have become more affordable after a record losing year.
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If the positive outlook on stocks is any indication, by the end of 2023 it will rebound to the level it was at six months ago. It is impossible to get cheaper in the foreseeable future. So, now is the time to invest in this blue-chip company that has strong fundamentals and good growth opportunities.
Considering the stock’s recovery prospects, the market will follow Microsoft’s expected second-quarter earnings report later this month. A diverse business model and a healthy balance sheet, characterized by strong cash flow and sustainable debt, increase the attractiveness of the stock.
Front Street
When it comes to future growth, the company is well-positioned to take advantage of emerging opportunities in areas like cloud computing, digital advertising, and cybersecurity. For example, the Intelligent Cloud business accounted for about 40% of total revenue in the most recent quarter – Azure is said to be the second largest cloud provider in the world today. Microsoft also dominates enterprise productivity services, thanks to the adoption of products like Microsoft 365.
Microsoft Corporation Q1 2023 Earnings Call Transcript
“At the total company level, we continue to expect double-digit revenue and operating income growth on a constant currency basis. Revenue will be driven by approximately 20% constant currency growth in our commercial business, driven by strong demand for Microsoft Cloud offerings . With the high margins in the Windows OEM business and the cyclical nature of the PC market, we take a long-term approach to invest in our core strategic growth areas and maintain that level of investment regardless of PC market conditions,” said Microsoft CFO Amy Hood on the first quarter earnings call.
Beat results
The company has a solid track record of delivering stronger-than-expected monthly financial results, with revenues continuing to grow and crossing the $50 billion mark for the first time in the last fiscal year. In the three months ending September 2022, the top line grew 11% year over year to $50.1 billion. All operating segments and sub-divisions, except Windows OEM, registered growth. However, earnings declined by double digits to $2.35 per share, which is mainly due to higher tax provisions.
Microsoft shares have had an inauspicious start to the year, suffering losses on the opening day. At $222, it traded slightly lower on Friday afternoon.
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