Microsoft was first out of the Mega-cap tech gates with their results,

M

What do you think?

Hopefully a little more than the “thought” applied by the first-level thinkers to whom this headline applies

MICROSOFT RISES 4% AFTER 2Q ADJUSTED EPS BEATS ESTIMATE

And are now nursing an 6% loss in 24 hours on this, “great business”…

Anyway, this is what their slides showed:

Revenue +2%
Operating income -8%
Diluted EPS -11%
Free Cash Flow (adjusted) -16%

Now that’s a lot of minus signs for a company that’s been the flag carrier for Growth, not to mention the:

2nd largest in the QQQ at an 11.7% weighting
2nd largest in the Russell 1000 Growth Index at a 10% weighting
2nd largest holding in the S&P500 Growth index at a 6% weighting

Thank goodness the S&P500 “only” has it at 5.3% weighting…

Except it’s a pity three of the four largest Passive Funds in the world with nearly $1trn are based on the S&P500 index..

So, fellow Active managers, now is your chance to get ahead of the “rudderless ships” because those PPPs (Poor Passive Passengers) are strapped in until the next index re-balancing

Unless they decide to actively sell, having figured out 20bp for -20% absolute performance in 2022 wasn’t such a good deal after all …

Oh well, at least Mr Softie isn’t in the Value Index…

Oh wait, it debuted at number 1 on the S&P500 Value “charts” in the December re-balancing, & is currently a 4.7% position

But I didn’t know MSFT was cheap!

I don’t think it is, but if you’re scratching your head as to how MSFT is a Value stock at 26x earnings, you need to watch my Youtube clip on “The Problems with Passive Value Funds” to see how this happened… (see link in my profile)

But let’s discuss my biggest gripe – with the industry, not only MSFT

Adjusted Free Cash Flow for the quarter was $7.254bn

Excluding (I assume) the $1.2bn in “severance, hardware impairment, & lease consolidation costs” that have been booked, and guessing most of which will be paid in hard cash

BUT

They spend $5.45bn buying back stock

Excellent, “returning cash to shareholders”!

Not so fast Tonto,

The share count fell from 7.464bn shares to 7.447bn shares, only 17m shares or 0.23%

But their 10Q disclosed the “Dilutive effect of stock-based awards” of 22m shares

so roughly 55% of the “cash returned to shareholders” was actually “cash given to employees”

So let’s deduct $3bn (55% of the $5.4bn) from the adjusted Free Cash flow of $7.25bn because that’s what was really “returned to shareholders”

= $4.25bn for the quarter

Let’s ignore the soft guidance and annualise that = $17bn

Now, what FCF yields gets me fired up today, 8%?

That’s roughly the hurdle it’s going to have to clear for our portfolio

Meaning I’d pay ~$212bn

Shall we double it to $400bn because it’s been a good month and I’m in a good mood?

Great

Does anyone want to explain to me what on earth Microsoft is doing at $ 1.8 trillion?

Microsoft was first out of the Mega-cap tech gates with their results,

What do you think?

Hopefully a little more than the “thought” applied by the first-level thinkers to whom this headline applies

MICROSOFT RISES 4% AFTER 2Q ADJUSTED EPS BEATS ESTIMATE

And are now nursing an 6% loss in 24 hours on this, “great business”…

Anyway, this is what their slides showed:

Revenue +2%
Operating income -8%
Diluted EPS -11%
Free Cash Flow (adjusted) -16%

Now that’s a lot of minus signs for a company that’s been the flag carrier for Growth, not to mention the:

2nd largest in the QQQ at an 11.7% weighting
2nd largest in the Russell 1000 Growth Index at a 10% weighting
2nd largest holding in the S&P500 Growth index at a 6% weighting

Thank goodness the S&P500 “only” has it at 5.3% weighting…

Except it’s a pity three of the four largest Passive Funds in the world with nearly $1trn are based on the S&P500 index..

So, fellow Active managers, now is your chance to get ahead of the “rudderless ships” because those PPPs (Poor Passive Passengers) are strapped in until the next index re-balancing

Unless they decide to actively sell, having figured out 20bp for -20% absolute performance in 2022 wasn’t such a good deal after all …

Oh well, at least Mr Softie isn’t in the Value Index…

Oh wait, it debuted at number 1 on the S&P500 Value “charts” in the December re-balancing, & is currently a 4.7% position

But I didn’t know MSFT was cheap!

I don’t think it is, but if you’re scratching your head as to how MSFT is a Value stock at 26x earnings, you need to watch my Youtube clip on “The Problems with Passive Value Funds” to see how this happened… (see link in my profile)

But let’s discuss my biggest gripe – with the industry, not only MSFT

Adjusted Free Cash Flow for the quarter was $7.254bn

Excluding (I assume) the $1.2bn in “severance, hardware impairment, & lease consolidation costs” that have been booked, and guessing most of which will be paid in hard cash

BUT

They spend $5.45bn buying back stock

Excellent, “returning cash to shareholders”!

Not so fast Tonto,

The share count fell from 7.464bn shares to 7.447bn shares, only 17m shares or 0.23%

But their 10Q disclosed the “Dilutive effect of stock-based awards” of 22m shares

so roughly 55% of the “cash returned to shareholders” was actually “cash given to employees”

So let’s deduct $3bn (55% of the $5.4bn) from the adjusted Free Cash flow of $7.25bn because that’s what was really “returned to shareholders”

= $4.25bn for the quarter

Let’s ignore the soft guidance and annualise that = $17bn

Now, what FCF yields gets me fired up today, 8%?

That’s roughly the hurdle it’s going to have to clear for our portfolio

Meaning I’d pay ~$212bn

Shall we double it to $400bn because it’s been a good month and I’m in a good mood?

Great

Does anyone want to explain to me what on earth Microsoft is doing at $ 1.8 trillion?