CK11
2021-06-09
MSFT still a growth story.
Where Will Microsoft Stock Be In 5 Years?
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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":180209593,"tweetId":"180209593","gmtCreate":1623204152512,"gmtModify":1634035837961,"author":{"id":3581899057268262,"idStr":"3581899057268262","authorId":3581899057268262,"authorIdStr":"3581899057268262","name":"CK11","avatar":"https://static.tigerbbs.com/0923eb4b52245eb1bf4d6c510566f9f5","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":91,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>MSFT still a growth story. </p></body></html>","htmlText":"<html><head></head><body><p>MSFT still a growth story. </p></body></html>","text":"MSFT still a growth story.","highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":3,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/180209593","repostId":1193765977,"repostType":2,"repost":{"id":"1193765977","pubTimestamp":1623168925,"share":"https://www.laohu8.com/m/news/1193765977?lang=&edition=full","pubTime":"2021-06-09 00:15","market":"us","language":"en","title":"Where Will Microsoft Stock Be In 5 Years?","url":"https://stock-news.laohu8.com/highlight/detail?id=1193765977","media":"Seekingalpha","summary":"Microsoft is great business trading for a premium price. The high valuation is likely to cap the upside for new buyers of MSFT stock.Microsoft does have strong growth prospects in cloud computing that can help earn out your purchase price of 32x FY 2021 earnings.10 years ago, it wasn't entirely clear where Microsoft was going to get growth from. Then Microsoft reinvented itself in thecloud computing businesswith Azure and hit a slow-motion home run. Azure completely changed Microsoft's business ","content":"<p><b>Summary</b></p>\n<ul>\n <li>Microsoft is great business trading for a premium price. The high valuation is likely to cap the upside for new buyers of MSFT stock.</li>\n <li>Microsoft does have strong growth prospects in cloud computing that can help earn out your purchase price of 32x FY 2021 earnings.</li>\n <li>My stock forecast for Microsoft for the next 5 years.</li>\n</ul>\n<p><b>Is Microsoft Stock A Buy?</b></p>\n<p>Microsoft (MSFT) transformed itself from a technological backwater in the 2000s to a cloud computing growth machine in the 2010s. Additionally, Microsoft makes steady money from their other lines of business, including Windows, Microsoft Office, and gaming. Along the way, the stock has increased more than 10x plus dividends. It doesn't take a genius to know that today's Microsoft runs a great business. After the run-up in the stock, the question now is whether the valuation makes sense and whether MSFT's future growth prospects offer enough compensation to forego other investment opportunities. On the balance, I think that Microsoft stock is likely to be a good investment at current prices, but not a great one.</p>\n<p><img src=\"https://static.tigerbbs.com/e018b111998393ef270c5b852e8b8e49\" tg-width=\"635\" tg-height=\"435\">Microsoft's earnings have grown steadily, but the share price has risen faster than earnings as investors have priced future growth into the stock. This becomes apparent when you look at Microsoft's P/E ratio over time.</p>\n<p><b>MSFT Stock Price, Earnings, and Valuation</b></p>\n<p><img src=\"https://static.tigerbbs.com/b3dbf619f017f02826d72bd4fc3aa231\" tg-width=\"640\" tg-height=\"503\"><i>Source:Macrotrends</i></p>\n<p>As you can see here, Microsoft's earnings have been up and down a bit but mostly up over the past decade. Microsoft's earnings trend is actually smoother than it looks because of someone-time tax charges, in 2018 for the repatriation tax, for example.</p>\n<p>If you look at the P/E ratio, you can pretty much draw a trendline from 2011 to 2021 and see that the market is willing to pay an increasing amount for each dollar of Microsoft's earnings. Back in 2011, Wall Street hated Microsoft stock. As time went on, however, the P/E trendline went from under 10x to 15x, then to 20x, then to 25x, and now after COVID, to over 30x earnings. For what it's worth, Apple saw a similar rise in valuation over the last 10 years. The question that you should always ask as an investor when you see this is whether this makes sense. In Microsoft's case, the rise in the P/E ratio does make some sense. MSFT used to make basically all of its money from Windows, Microsoft Office, and Xbox. Today, expectations have never been higher for MSFT's earnings growth, and the reason is that Microsoft is making an increasing amount of its income from cloud computing.</p>\n<p><b>How Much Is Microsoft Expected To Grow?</b></p>\n<p>10 years ago, it wasn't entirely clear where Microsoft was going to get growth from. Then Microsoft reinvented itself in thecloud computing businesswith Azure and hit a slow-motion home run. Azure completely changed Microsoft's business model, and Microsoft's management followed when Satya Nadella (who led Microsoft's cloud operation) was promoted to CEO in 2014. Incidentally, with Jeff Bezos departing Amazon in 2021, AMZN took a page out of Microsoft's playbook by promoting their head of cloud computing (Andy Jassy) to CEO.</p>\n<p>Like a utility, cloud computing providers make investments in infrastructure and then sell their product (computing) to customers. The investment in infrastructure is mostly fixed, while customers can pay for as much as they need. With costs mostly fixed, ongoing growth in data needs for businesses has made a killing for the successful cloud businesses like Amazon AWS(NASDAQ:AMZN)and Microsoft Azure. For example, Google(NASDAQ:GOOG)(NASDAQ:GOOGL)is now competing in the cloud computing market andis still losing billions in its effortto get its cloud business up to speed. Cloud computing is typically a win-win for customers and providers, as both parties are better off sharing computing power than investing in it individually. Economies of scale and network effects ensured that the profits accrue to the early entrants in a winner-take-all type of market. Today, Wall Street analysts give Microsoft plenty of love for its new growth trajectory, with MSFT expected to earn $7.77 per share in 2021, $8.28 in 2022, and $9.53 in 2023.</p>\n<p>Microsoft has a few different lines of business that they discussed during theirmost recent earnings conference call, but the growth in cloud computing is what will likely make or break the stock. The numbers so far have been great, with $6.43 billion in operating income in the last quarter alone and rapid growth (roughly 1/3 of Microsoft's total revenue and profit).</p>\n<p><img src=\"https://static.tigerbbs.com/cbcf88a63e7094f74eada7fc87db11a9\" tg-width=\"640\" tg-height=\"361\"><i>Source:Microsoft FY 2021 Q3 Earnings Presentation</i></p>\n<p>As a general rule, no business can grow at 30 percent annually forever. This makes investing in growth stocks tricky when you pay a high multiple for them, you have to do a substantial amount of handicapping to determine whether you're overpaying or not.</p>\n<p>Microsoft is no exception, its cloud segment won't be able to grow at 30 percent annually forever. The question is how big it can grow before slowing down. My intuition is that the pandemic pulled cloud adoption by businesses forward in time, as work from home forced companies to invest in their tech infrastructure. The faster a business is growing, the trickier it generally is to value, but I'll assume that Azure can grow at 20 percent annually over the next 5 years, and then 5 percent after that.</p>\n<p>Let's round Azure/Cloud's operating profits last quarter to $6.4 billion. Microsoft typicallyconverts about 75 percent of its operating income into net income, with the rest going to items like stock compensation (absolutely a necessary expense), depreciation & amortization (I'll assume these are equal to Azure's capex in the long run), and a bunch of other miscellaneous items. That gets us to an estimate of $19.2 billion for Microsoft's cloud segment's current annual profit, or about $2.56 per share. According to analyst estimates, Microsoft will earn another $5.21 from all other sources this year. Let's say the cloud income grows 20 percent over the next 5 years, which gets us $6.37 per share in income from the cloud. Now, let's assume the rest of their income grows at 5 percent annually, which I think is fair for a long-run estimate. The rest of Microsoft's business would earn about $6.65 per share in 2026. Add them together, and Microsoft should be able to earn about $13.02 per share over the next 5 years before accounting for buybacks. MSFT bought back about1 percent of their outstanding shareslast year, if we assume they buy back 5 percent of shares over the next 5 years, then we boost earnings per share to ~$13.70.</p>\n<p><b>MSFT Stock Forecast</b></p>\n<p>I believe MSFT should come close to doubling earnings per share over the next 5 years. However, as I noted before, the cloud business won't grow at this rate forever, and the share price has risen much faster than earnings have over the last decade, essentially baking some of this growth into the stock.</p>\n<p>For 2026, I find it only fair to assume that the multiple for MSFT shrinks to 25x earnings from 32x, while earnings growth eventually slows down. This gets us to a stock forecast of $342 for Microsoft in 2026, plus dividends. Some readers might think I'm being too harsh on Microsoft. I've found that valuations are fairly high for large-cap tech after 2020, and these high valuations are taking away from future upside. All-in including dividends, my price target means I'm projecting about a 7 percent annual return for Microsoft shareholders. I'm projecting similar returns for Apple (AAPL), Amazon, and other popular large-cap tech names. It's possible I'm being too conservative in my projections, but you can't deny that most of the increase in the value of popular tech stocks has come from increases in valuation and one-time increases in earnings from corporate tax cuts. For the future, NASDAQ returns are likely to be materially lower than they have been in the past, and this includes Microsoft.</p>\n<p>I'll close this article by listing the top 10 NASDAQ stocks bymarket capitalization in 1999.</p>\n<ol>\n <li>Microsoft</li>\n <li>Cisco(NASDAQ:CSCO)</li>\n <li>Qualcomm(NASDAQ:QCOM)</li>\n <li>Intel(NASDAQ:INTC)</li>\n <li>WorldCom</li>\n <li>Oracle(NYSE:ORCL)</li>\n <li>Dell(NYSE:DELL)</li>\n <li>Sun Microsystems</li>\n <li>Yahoo</li>\n <li>JDS Uniphase</li>\n</ol>\n<p>While I expect Microsoft to continue to do well as a business, the current valuation, while not as crazy as the one in 1999, is constraining the prospects for its stock. The ghosts of the NASDAQ past also loom large in my projections, and I think that a 7 percent annual return for Microsoft shareholders sounds about right going forward given its growth prospects, valuation, and competitive position in the marketplace. Microsoft stock could do substantially better or worse than my projection, but my projections combined withlong-running research about popular stockshaving slightly lower returns than average suggest that MSFT's upside is not quite as good as the most optimistic shareholders think.</p>","source":"seekingalpha","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Where Will Microsoft Stock Be In 5 Years?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhere Will Microsoft Stock Be In 5 Years?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-06-09 00:15 GMT+8 <a href=https://seekingalpha.com/article/4433653-microsoft-stock-5-years><strong>Seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Summary\n\nMicrosoft is great business trading for a premium price. The high valuation is likely to cap the upside for new buyers of MSFT stock.\nMicrosoft does have strong growth prospects in cloud ...</p>\n\n<a href=\"https://seekingalpha.com/article/4433653-microsoft-stock-5-years\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"MSFT":"微软"},"source_url":"https://seekingalpha.com/article/4433653-microsoft-stock-5-years","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1193765977","content_text":"Summary\n\nMicrosoft is great business trading for a premium price. The high valuation is likely to cap the upside for new buyers of MSFT stock.\nMicrosoft does have strong growth prospects in cloud computing that can help earn out your purchase price of 32x FY 2021 earnings.\nMy stock forecast for Microsoft for the next 5 years.\n\nIs Microsoft Stock A Buy?\nMicrosoft (MSFT) transformed itself from a technological backwater in the 2000s to a cloud computing growth machine in the 2010s. Additionally, Microsoft makes steady money from their other lines of business, including Windows, Microsoft Office, and gaming. Along the way, the stock has increased more than 10x plus dividends. It doesn't take a genius to know that today's Microsoft runs a great business. After the run-up in the stock, the question now is whether the valuation makes sense and whether MSFT's future growth prospects offer enough compensation to forego other investment opportunities. On the balance, I think that Microsoft stock is likely to be a good investment at current prices, but not a great one.\nMicrosoft's earnings have grown steadily, but the share price has risen faster than earnings as investors have priced future growth into the stock. This becomes apparent when you look at Microsoft's P/E ratio over time.\nMSFT Stock Price, Earnings, and Valuation\nSource:Macrotrends\nAs you can see here, Microsoft's earnings have been up and down a bit but mostly up over the past decade. Microsoft's earnings trend is actually smoother than it looks because of someone-time tax charges, in 2018 for the repatriation tax, for example.\nIf you look at the P/E ratio, you can pretty much draw a trendline from 2011 to 2021 and see that the market is willing to pay an increasing amount for each dollar of Microsoft's earnings. Back in 2011, Wall Street hated Microsoft stock. As time went on, however, the P/E trendline went from under 10x to 15x, then to 20x, then to 25x, and now after COVID, to over 30x earnings. For what it's worth, Apple saw a similar rise in valuation over the last 10 years. The question that you should always ask as an investor when you see this is whether this makes sense. In Microsoft's case, the rise in the P/E ratio does make some sense. MSFT used to make basically all of its money from Windows, Microsoft Office, and Xbox. Today, expectations have never been higher for MSFT's earnings growth, and the reason is that Microsoft is making an increasing amount of its income from cloud computing.\nHow Much Is Microsoft Expected To Grow?\n10 years ago, it wasn't entirely clear where Microsoft was going to get growth from. Then Microsoft reinvented itself in thecloud computing businesswith Azure and hit a slow-motion home run. Azure completely changed Microsoft's business model, and Microsoft's management followed when Satya Nadella (who led Microsoft's cloud operation) was promoted to CEO in 2014. Incidentally, with Jeff Bezos departing Amazon in 2021, AMZN took a page out of Microsoft's playbook by promoting their head of cloud computing (Andy Jassy) to CEO.\nLike a utility, cloud computing providers make investments in infrastructure and then sell their product (computing) to customers. The investment in infrastructure is mostly fixed, while customers can pay for as much as they need. With costs mostly fixed, ongoing growth in data needs for businesses has made a killing for the successful cloud businesses like Amazon AWS(NASDAQ:AMZN)and Microsoft Azure. For example, Google(NASDAQ:GOOG)(NASDAQ:GOOGL)is now competing in the cloud computing market andis still losing billions in its effortto get its cloud business up to speed. Cloud computing is typically a win-win for customers and providers, as both parties are better off sharing computing power than investing in it individually. Economies of scale and network effects ensured that the profits accrue to the early entrants in a winner-take-all type of market. Today, Wall Street analysts give Microsoft plenty of love for its new growth trajectory, with MSFT expected to earn $7.77 per share in 2021, $8.28 in 2022, and $9.53 in 2023.\nMicrosoft has a few different lines of business that they discussed during theirmost recent earnings conference call, but the growth in cloud computing is what will likely make or break the stock. The numbers so far have been great, with $6.43 billion in operating income in the last quarter alone and rapid growth (roughly 1/3 of Microsoft's total revenue and profit).\nSource:Microsoft FY 2021 Q3 Earnings Presentation\nAs a general rule, no business can grow at 30 percent annually forever. This makes investing in growth stocks tricky when you pay a high multiple for them, you have to do a substantial amount of handicapping to determine whether you're overpaying or not.\nMicrosoft is no exception, its cloud segment won't be able to grow at 30 percent annually forever. The question is how big it can grow before slowing down. My intuition is that the pandemic pulled cloud adoption by businesses forward in time, as work from home forced companies to invest in their tech infrastructure. The faster a business is growing, the trickier it generally is to value, but I'll assume that Azure can grow at 20 percent annually over the next 5 years, and then 5 percent after that.\nLet's round Azure/Cloud's operating profits last quarter to $6.4 billion. Microsoft typicallyconverts about 75 percent of its operating income into net income, with the rest going to items like stock compensation (absolutely a necessary expense), depreciation & amortization (I'll assume these are equal to Azure's capex in the long run), and a bunch of other miscellaneous items. That gets us to an estimate of $19.2 billion for Microsoft's cloud segment's current annual profit, or about $2.56 per share. According to analyst estimates, Microsoft will earn another $5.21 from all other sources this year. Let's say the cloud income grows 20 percent over the next 5 years, which gets us $6.37 per share in income from the cloud. Now, let's assume the rest of their income grows at 5 percent annually, which I think is fair for a long-run estimate. The rest of Microsoft's business would earn about $6.65 per share in 2026. Add them together, and Microsoft should be able to earn about $13.02 per share over the next 5 years before accounting for buybacks. MSFT bought back about1 percent of their outstanding shareslast year, if we assume they buy back 5 percent of shares over the next 5 years, then we boost earnings per share to ~$13.70.\nMSFT Stock Forecast\nI believe MSFT should come close to doubling earnings per share over the next 5 years. However, as I noted before, the cloud business won't grow at this rate forever, and the share price has risen much faster than earnings have over the last decade, essentially baking some of this growth into the stock.\nFor 2026, I find it only fair to assume that the multiple for MSFT shrinks to 25x earnings from 32x, while earnings growth eventually slows down. This gets us to a stock forecast of $342 for Microsoft in 2026, plus dividends. Some readers might think I'm being too harsh on Microsoft. I've found that valuations are fairly high for large-cap tech after 2020, and these high valuations are taking away from future upside. All-in including dividends, my price target means I'm projecting about a 7 percent annual return for Microsoft shareholders. I'm projecting similar returns for Apple (AAPL), Amazon, and other popular large-cap tech names. It's possible I'm being too conservative in my projections, but you can't deny that most of the increase in the value of popular tech stocks has come from increases in valuation and one-time increases in earnings from corporate tax cuts. For the future, NASDAQ returns are likely to be materially lower than they have been in the past, and this includes Microsoft.\nI'll close this article by listing the top 10 NASDAQ stocks bymarket capitalization in 1999.\n\nMicrosoft\nCisco(NASDAQ:CSCO)\nQualcomm(NASDAQ:QCOM)\nIntel(NASDAQ:INTC)\nWorldCom\nOracle(NYSE:ORCL)\nDell(NYSE:DELL)\nSun Microsystems\nYahoo\nJDS Uniphase\n\nWhile I expect Microsoft to continue to do well as a business, the current valuation, while not as crazy as the one in 1999, is constraining the prospects for its stock. The ghosts of the NASDAQ past also loom large in my projections, and I think that a 7 percent annual return for Microsoft shareholders sounds about right going forward given its growth prospects, valuation, and competitive position in the marketplace. Microsoft stock could do substantially better or worse than my projection, but my projections combined withlong-running research about popular stockshaving slightly lower returns than average suggest that MSFT's upside is not quite as good as the most optimistic shareholders think.","news_type":1},"isVote":1,"tweetType":1,"viewCount":116,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":22,"xxTargetLangEnum":"ORIG"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/180209593"}
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