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Microsoft: Q2 2019 - Solid Results

Feb. 05, 2019 6:44 PM ETMicrosoft Corporation (MSFT)15 Comments


  • Q2 2019 results: steady top-line and bottom-line growth.
  • Microsoft is the best platform for the modern workforce.
  • Very strong capital return program.
  • Microsoft remains undervalued, for now.
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Investment Thesis

Simply put, the reason why I believe that Microsoft (NASDAQ:MSFT) is undervalued is that it delivers the two things which investors crave: predictability and double-digit earnings growth.

What's more, Microsoft not only continues to deliver steady earnings growth but also remains committed to returning excess capital to shareholders. And lastly, and debatably most important in the eyes of this author, investors are not being asked to pay up for this opportunity.

Q2 2019 Results: Strong Results

Microsoft's top-line grew 13% (constant currency) to $32.5 billion, while its bottom line fared even better and was up 14% (constant currency). Although, if I were to point out one blemish in Microsoft's Q2 2019 results, it would be the fact that Microsoft's free cash flow was down 2% YoY to $5.2 billion - although that didn't stop Microsoft from having a strong capital return program in Q2 (more below).

First Player Advantage - What Does It Mean?

In investing, sometimes we need some common sense, coupled with a little bit of financial savviness. Not a lot of financial savviness, but some.

Let's step back and think. Over time, which company will have the most trust from large enterprises to not only offer them cloud capabilities, but to go further, and offer them solutions? Microsoft, right? Granted, Amazon (AMZN) spotted the opportunity first - every investor knows that. But being first, when it comes to Amazon's AWS (and everything else Amazon related) is already priced into Amazon's market cap.

Besides, when it comes to technology, sadly, first-mover advantage is quite meaningless. Think of your first search engine? Or your first mobile? Or your first camera? All those companies have had their moment in the sun. My point being that coming first doesn't mean reigning the day.

What I'm trying to drive home

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This article was written by

Energy transition, commodities, and tech
THANK YOU for all the help that everyone has so kindly offered me, in how to think about businesses from different perspectives.

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