Microsoft Q4 FY6/25 Earnings Review
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It Takes A Nation Of Billions.
Seventy billions, in fact. Think of a country, any country. Many times it will have less cash on hand than does Microsoft. This is because everything the critics of the wealth divide say is true - a handful of companies are generating a hugely disproportionate amount of market profits and cashflow, and they are - selfishly!! - hoarding those profits. The problem is that these companies - Microsoft, Meta, Google, others - are winning this way because:
- They have products and services that people want to buy, and
- Those products and services can be distributed globally at a very low incremental cost per user, and
- Those products and services have a natural, embedded network effect (MSFT = AT&T for the modern age. Anyone remember Scott McNealy and his Big Fedding Webtone? It’s here, now).
- These exports are not subject to any tariffs because nobody has pushed to include services in the re-organization of world trade.
So the cash continues to pile up. One day in the future, if we get there before the machines take over, a handful of antitrust laws will dismember these Leviathans.
But not this week.
This week, Redmond’s finest has delivered rock-solid accelerating revenue growth, rising EBITDA margins and - before anyone says “yes but capex and the tooth fairy” - very strong unlevered pretax cashflow margins after all that capex. The stock is inexpensive on fundamentals and whilst we may see any manner of short-term pullbacks in the Nasdaq and/or Microsoft stock, until this bull gives way to the next bear, I think MSFT is a going-up name for the patient.
Let’s take a look at the numbers. First, the headlines.
Financial Summary.
Translated: read it and weep, losers.
Next the fundamentals in detail, valuation analysis, stock chart and rating.
Financial Fundamentals.
As well as all the headlines, RPO growth accelerated - so the order book, which is fully 1.3x TTM revenues, and worth $368bn, is growing at 34%. I don’t really know what to say about that except that it is unprecedented.
Valuation Metrics.
Is 38x TTM cashflow expensive? It’s not cheap; but I will remind you that what you are buying here is a $368bn book of business (that’s the RPO) growing that book at 34% YoY and, better, the thing turns $1 of revenue into $0.37 of unlevered pretax FCF. So you tell me what you think that’s worth!
Stock Chart.
You can open a full page version of the chart here.
The stock can go higher, of course it can. The fundamentals are wonderful and I would be surprised if this bull market was finished; I think there is a good deal more to come. But a prudent investor would take some gains here. Based on the chart we rate at Distribute for now. I can give you an alternative, more bullish chart where the stock is still in a Wave 3 up, but even then it’s probably around the top of a W3 and so taking some gains still wouldn’t be dumb. Your call as always - it’s your money.
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Cestrian Capital Research, Inc - 1 August 2025.