Microsoft (NASDAQ:MSFT) is undoubtedly one of the most successful companies in the world. It's extremely valuable, commanding a market capitalization of $884 billion as of this writing, and backing up that big market cap is a highly profitable, growing business.
If you're interested in learning some of the basics of this software behemoth, then you've come to the right place. Here are three things that you should know about Microsoft.
Breaking down the business
During the company's fiscal 2018, Microsoft generated $110.4 billion in net revenue, up slightly more than 14% year over year. The company's operating income that year was almost $35.1 billion, up 20.8% year over year and representing roughly 31.8% of revenue. (That figure, in case you're interested, is Microsoft's operating margin.)
Now, Microsoft is a large business and it offers an extremely broad range of product lines, but Microsoft ultimately organizes them under three broad reporting segments: productivity and business processes, intelligent cloud, and more personal computing.
You can read good descriptions of each of these reporting segments offers in this helpful page on Microsoft's investor relations website.
The table below shows both the revenue and operating income from each of these segments in fiscal year 2018:
|Reporting Segment||FY 2018 Revenue (in Millions)||FY 2018 Operating Income (in Millions)||FY 2018 Operating Margin|
|Productivity and business processes||$35,865||$12,924||36%|
|More personal computing||$42,276||$10,610||25.1%|
Microsoft generates a lot more cash than it knows what to do with, so it pays a reasonable dividend and also buys back a healthy amount of stock.
In fact, on Sept. 18, Microsoft announced a quarterly dividend of $0.46 per share (that's $1.84 on an annualized basis). This, Microsoft said, was a "4 cent, or 9.5 percent increase over the previous quarter's dividend." The company's annualized dividend yield based on its most recently announced quarterly dividend is about 1.61%.
In addition to a dividend, Microsoft also buys back stock, something that's helped the company reduce its share count (and, ultimately, boost earnings per share) over the years.
According to Microsoft's most recent annual filing, the company bought back 99 million shares in fiscal year 2018. It's worth noting, though, that the company also says that it issued 68 million shares, so when all was said and done, Microsoft's share count dropped by 31 million shares in fiscal year 2018. (The company's total share count at the end of fiscal year 2018 was 7.68 billion.)
Analyst consensus calls for Microsoft to turn in $122.91 billion in sales during fiscal 2019 -- up almost 11.4% from what the software giant reported in fiscal 2018. The company's earnings per share is expected to grow from $3.88 (on a non-GAAP basis) to $4.28, up about 10.3% year over year (slightly slower than revenue).
In the following year, analysts expect Microsoft to turn in a whopping $135.88 billion in sales, up yet another 10.5% year over year, with earnings per share growing to $4.93 -- up approximately 15.2% and outpacing revenue growth.
Of course, analyst estimates can (and very often do) change as new information comes in, but it can be helpful for investors to know what analysts and the investment community are expecting the company to deliver in the years ahead.
Although time will tell exactly how much Microsoft grows in fiscal years 2019, 2020, and beyond, it's worth keeping in mind that the company is exposed to a number of fast-growing markets. For example, last quarter the company's Azure cloud business grew 89% during its fiscal year 2018, its gaming revenue surged 39%, and its LinkedIn sales grew 37% year-over-year.
There's also a saying that "past performance is the best predictor for future success" and Microsoft's sales and operating profit have, over the long term, trended up and to the right.