Hi YXI friends,

Today, we are reviewing Microsoft (MSFT)’s latest earnings for Q4 FY2024 (quarter ending June 30, 2024).

MSFT’s share price recently peaked in early July at $468. It continued tumbling after the latest earning’s report on July 30. Now at $407, is it time to buy the dip, or wait for further weakness?

Let’s find out! In this article, we will cover MSFT through fundamental analysis, comparable valuations, discounted cash flow modelling, and technical analysis.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Competition is for losers

Small fish like to say they are the big boss of their little pond with no competition. Here are the business versions: Slack says they are the best communication tool for the cool kids. Zoom says they have the best video call experience for remote work.

Microsoft comes along and knocks them off their perch with a simple bundling of Microsoft Teams with its Office suite. By handing out the free productivity confetti with unrivalled distribution power of its Office users, Microsoft can copy and win. Slack tries to sue Microsoft and ultimately has to live under the umbrella of Salesforce. Zoom’s share price lingers at the post-IPO lows, like a pop song people forgot.

The giants of Microsoft and Google spend a tonne of money and energy convincing regulators they have competition. This is precisely because they are monopolies in nature. Except now we are in the AI race, with all the big money from big monopolies thrown at winning the race.

Will Microsoft be the winner?

What does Microsoft do exactly?

Microsoft is a conglomerate of seemingly unrelated ventures trying to look like a family. Think The Wedding Ringer (2015).

Microsoft’s businesses are organised into 3 segments: Productivity and Business Processes, Intelligent Cloud, More Personal Computing.

Productivity and Business Processes (P&BP) includes Office Commercial, Office Consumer, LinkedIn, Dynamics business solutions.

Intelligent Cloud (IC) runs Server products and cloud services (Azure, SQL Server, Visual Studio, GitHub) and Enterprise and partner services.

More Personal Computing (MPC) holds Windows, Devices (Surface, PC accessories), Gaming (Xbox), and Search and news advertising (Bing, Microsoft Edge)

While these are horizontal business segments, investors also judge Microsoft on two more interwoven categories: Commercial Business and Microsoft Cloud.

Intelligent Cloud generates nearly half of the revenue share, while also growing the fastest. We will dive deeper into the business segment performance below.

2. FY2024 Q4 Financial Highlights

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