EPS of $2.69 increased by 20.5% from previous year
Gross margin of 70.1%
Net income of 20.08B
""Every customer I speak with is asking not only how, but how fast they can apply next-generation AI to address the biggest opportunities and challenges they face..." - Satya Nadella, CEO" - Satya Nadella, CEO
Microsoft Corporation (MSFT) Q4 2023 Earnings Report: Strong Finish Fueled by Cloud and AI Momentum
Executive Summary
Microsoft Corporation (MSFT) closed its fiscal year 2023 with a solid Q4 performance, reporting revenues of $56.2 billion, marking an 8% increase year-over-year (10% in constant currency). Key drivers included robust growth in cloud services, particularly Azure, which now accounts for over 50% of total Microsoft Cloud revenue. Microsoft Cloud reached annual revenues exceeding $110 billion, up 27% in constant currency, reflecting strong demand for both traditional cloud workloads and emerging AI applications. Significant advancements in productivity and AI capabilities contributed to operating income growth of 18% (21% in constant currency) and net income growth of 20% (23% in constant currency). The company's vigorous execution and strategic investments suggest a promising trajectory in a market increasingly leaning towards AI-driven productivity solutions.
**Earnings Per Share (EPS)**: $2.69 (YoY growth: 20.54%; QoQ growth: 9.76%)
### Cash Flow and Balance Sheet Health
Financial Highlights
### Financial Performance Metrics
- Revenue: $56.2 billion (YoY growth: 8.34%; QoQ growth: 6.30%)
- Gross Profit: $39.4 billion (Gross Profit Margin: 70.1%, YoY growth: 11.17%; QoQ growth: 7.26%)
- Operating Income: $24.3 billion (Operating Margin: 43%, YoY growth: 18.12%; QoQ growth: 8.51%)
- Net Income: $20.1 billion (Net Margin: 35.8%, YoY growth: 19.96%; QoQ growth: 9.74%)
- Earnings Per Share (EPS): $2.69 (YoY growth: 20.54%; QoQ growth: 9.76%)
### Cash Flow and Balance Sheet Health
- Operating Cash Flow: $28.8 billion, 17% increase YoY
- Free Cash Flow: $19.8 billion, up 12% YoY
- Total Assets: $411.98 billion
- Total Liabilities: $205.75 billion, resulting in Total Stockholders' Equity of $206.22 billion
- Debt to Total Capitalization Ratio: 22.5%
- Current Ratio: 1.77
- Quick Ratio: 1.74
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
56.19B
8.34%
6.30%
Gross Profit
39.39B
11.17%
7.26%
Operating Income
24.25B
18.12%
8.51%
Net Income
20.08B
19.96%
9.74%
EPS
2.70
20.54%
9.76%
Key Financial Ratios
currentRatio
1.77
grossProfitMargin
70.1%
operatingProfitMargin
43.2%
netProfitMargin
35.7%
returnOnAssets
4.87%
returnOnEquity
9.74%
debtEquityRatio
0.29
operatingCashFlowPerShare
$3.87
freeCashFlowPerShare
$2.67
dividendPayoutRatio
25.2%
priceToBookRatio
12.28
priceEarningsRatio
31.52
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Commentary on Key Focus Areas
- Satya Nadella, CEO:
"The Microsoft Cloud surpassed $110 billion in annual revenue, up 27% in constant currency, with Azure accounting for more than 50% of the total for the first time." This indicates a growing dominance in cloud services, setting the stage for future growth in AI.
- Amy Hood, CFO:
"In our largest quarter of the year, results exceeded expectations with focused execution by our sales and partner teams... Microsoft Cloud revenue was $30.3 billion and grew 21% and 23% in constant currency, slightly ahead of expectations." This commentary underscores strong demand in the cloud market, highlighting effective management and execution strategies driving growth.
"Every customer I speak with is asking not only how, but how fast they can apply next-generation AI to address the biggest opportunities and challenges they face..." - Satya Nadella, CEO
â Satya Nadella, CEO
"The average annualized value for our large, long-term Azure contracts was the highest it's ever been, driven by customer demand for our innovative cloud solutions today as well as interest in AI opportunities ahead." - Amy Hood, CFO
â Amy Hood, CFO
Forward Guidance
Microsoft's management provided a cautiously optimistic outlook for fiscal year 2024. They anticipate continued revenue growth from the Microsoft Cloud, driven by ongoing investments in infrastructure to support AI and cloud demand. Capital expenditures are expected to increase sequentially throughout the year, reflecting Microsoft's commitment to maintain its leadership in the cloud segment. The anticipated growth from AI services will initially be gradual as Azure AI scales and the company increases its cloud infrastructure to meet growing demand. Overall, Microsoft projects steady growth in cloud revenue while maintaining operational efficiency, with a focus on driving up operating margins in the future.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MSFT Focus
70.11%
43.20%
9.74%
31.52%
PANW
74.10%
13.00%
13.00%
84.23%
PATH
84.50%
-14.60%
-1.44%
-76.80%
SQ
35.10%
-2.26%
0.95%
66.79%
ADBE
87.40%
34.50%
8.98%
46.87%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investors should consider Microsoft's robust growth narrative underpinned by its cloud and AI strategies. With a steady revenue stream bolstered by solid demand for Microsoft Cloud services, plus a strong financial position reflected in healthy cash flows and low debt ratios, Microsoft appears well-positioned for long-term growth. However, investors should remain vigilant regarding competitive pressures and economic fluctuations that may impact future earnings. The balance between innovation in AI offerings and managing expenses will be critical as management aims to sustain operating margins and revenue growth. Overall, Microsoft presents a compelling investment opportunity within a rapidly evolving technology landscape.
Key Investment Factors
Growth Potential
Microsoft is positioned for substantial growth driven by cloud services, particularly Azure and emerging AI applications. The company's shift towards AI will likely open new revenue streams and enhance existing services.
Profitability Risk
Potential risks include competitive pressures from other cloud service providers, market saturation in specific segments, and the impact of economic conditions on IT spending. Additionally, regulatory challenges related to acquisitions could impact growth.
Financial Position
Strong balance sheet with significant cash reserves and manageable debt levels allows Microsoft to invest in growth opportunities and weather economic fluctuations. Investing heavily in infrastructure to support cloud and AI growth indicates a proactive strategy.
SWOT Analysis
Strengths
Leading position in cloud computing with Azure surpassing 50% share of overall cloud revenue.
Strong cash flow generation enabling continuous investment in growth and innovation.
Diverse product portfolio including Office 365, Dynamics, LinkedIn, and cloud services that cater to various customer needs.
Weaknesses
Heavy reliance on cloud growth in an increasingly competitive market against cloud giants like Amazon and Google.
Challenges in integrating and realizing synergies from large acquisitions, which may result in execution risks.
Opportunities
Expanding the AI market presents significant growth potential for Microsoft's cloud services and AI solutions.
Growing demand for remote work and digital transformation solutions can increase new customer acquisition.
Threats
Intensifying competition in the cloud and AI markets from both established tech giants and emerging startups.
Economic downturn leading to reduced spending on IT and cloud services can impact revenue growth.