Microsoft Stock Analysis | Is it Overvalued?

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Financial Analysis of Microsoft| Foreign stock Analysis

Foreign Stock Analysis – Microsoft


Previously we have done stock analysis of Apple Inc. In this blog, let us analyse Microsoft having a market capitalization of $1.6 Trillion with a ubiquitous popularity among consumers globally. We will discuss the financials, product mix, revenue mix, new product launches and recent acquisitions of the company.

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Microsoft Stock Analysis

Stock Price – Last 25 years

Microsoft stock price
  • On February 4, 2014, Nadella became CEO of Microsoft who is the third person to hold the office in the company’s nearly 40-year history, after company co-founder Bill Gates and Steve Ballmer. Since then the company’s stock price has witnessed exponential growth proving to be a solid consistent compounder of wealth.
  • From 2015-2020 Microsoft’s share price has increased five-fold thus easily outperforming the benchmarks of S&P 500 and NASDAQ Computer.
  • Company enjoys an allocation of 10.7% in the NASDAQ 100 and 5.7% in the S&P 500.  

Total Revenue (Billion $)

Microsoft Total Revenue (Billion $)
  • Despite being a blue chip stock Microsoft has been able to grow its revenues by a CAGR of 8.7% in the last 10 Years and 11.6% CAGR in the previous 4 years under the direction and supervision of Satya Nadella.
  • They are riding the purple patch by taking full advantage of operating leverage and the prevailing economies of scale which as a result has helped them to generate a revenue of 143 Billion $ in 2020.

Profit After Tax

Microsoft Profit After Tax (PAT)
  • The company has recorded a phenomenal growth in Pre-Tax Profit of 22.7% CAGR and 7.8% CAGR  over the past 5 and 10 years.
  • This is a classic demonstration of how the professional management of a can excel and transcend boundaries thereby achieving success constantly year after year.
  • With such spectacular earnings yields, a huge majority prefer to invest in the likes of Microsoft over US Treasury Securities which furnish paltry returns. This could well be a reason behind Microsoft stock price being valued a premium at all times.

Key Financial Ratios

Microsoft Key Ratios
  • Operating Margin has persistently improved every year from 28% in FY16 to 37% in FY20.
  • As a consequence of the above, the Net Profit Margin has doubled from the lows of 15% in FY18 to 30% in FY20.
  • The company has been successful in shrinking their debt to equity ratio to 0.53 in FY20 from an all time high of 0.98 in FY17.
  • Robust growth in ROE numbers over the years to 37% in FY20 is a positive sign indicating that Microsoft is turning a corner.
  • Continuous increase in Free Cash-flow Per share from $3.12 in FY16 to $5.89 is a testament of the company’s ability and potential to multiply value to shareholder’s in the coming years.

R&D Expense

Microsoft R&D Expense
  • This might flabbergast most yet it is true. For the past decade Microsoft has been pious, disciplined and uniform, ensuring that their R&D Expenditure is ~13% of their revenue every year.
  • This simply goes show to show the company’s passion, commitment and dedication that drives future innovation and creativity in their upcoming products by offering the latest cutting edge technology to their customers.

Indian Mutual funds holding Microsoft

  • Indian Mutual funds houses like Motilal Oswal, SBI, Parag Parikh, etc have allocation to Microsoft in their respective portfolios.
  • Motilal Oswal NASDAQ 100 ETF has highest allocation to Microsoft of 10%.

Segment-wise Revenue Mix (%)

Microsoft segment-wise Revenue Mix (%)
  • As compared to early 2000 when a majority of Microsoft’s revenue was contributed by Personal Computing, today they have a well diversified revenue mix with all three major segments forming  almost equal tranches of the total revenue mix.
  • In the last 5 years the company has done an excellent job in scaling the Intelligent Cloud (Azure), Productivity & Business Processes segment which today contribute one-third of their revenues as opposed to just one fourth in 2016.
Segment wise Revenue Mix (%) last 5 years
  • As seen, Intelligent Cloud segment is growing at robust rate and thus commanding higher share in the revenue mix.
  • This shows that company is focusing on improving its services like Azure, etc.

Product wise Revenue Mix

Microsoft Product wise Revenue Mix (%)
Product wise revenue mix over the years
Microsoft Azure Market share (%)
  • In the past 5 years Microsoft has experienced high growth in Azure ( Cloud Intelligence), SQL server and Xbox. Simultaneously they have also gained significant market share in the above respective product segment specially with Azure.
  • Microsoft acquired LinkedIn in June 2016 in an all cash transaction valued at $26.2 Billion and it has already generated a revenue of ~20$ Billion in the last 3 years. LinkedIn has >90% market share in employment oriented online service globally and expected to expand exceptionally  well in the coming years.

New Product Launches

Microsoft New Product Launches

Acquisitions over the years

Microsoft Acquisitions over the years
Microsoft’s biggest acquisitions (Billion $)
Microsoft Recent Acquisitions
  • As seen, company undertakes inorganic growth in the form of acquisitions quite aggressively.


The trend that “Big Becomes Bigger” has been quite prevalent in the last decade and the same will continue further. Companies with professional management wherein the promoters are willing to hand over control to new blood in the organizations like Satya Nadella is a clear indication that Microsoft does not wish to become complacent or settle. Their mentality is similar to that of a startup, always hungry for long term sustainable growth in a responsible manner.

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