Wednesday, January 27, 2021

Microsoft's 2Q2021 Earnings Report - Impressive Revenue & Earnings Beat!


Future pillars of growth

  • Revenue grew 17% yoy to $43.1B. Beats wall street's estimate of $40.2B. 14th straight quarters of double-digit sales growth.
  • Net income of $15.5B which translates into earnings per share of $2.03. Beats wall street's estimate of $1.64
  • Azure cloud revenue grew 50% yoy. Gross margin for the commercial cloud business has improved 4% to 71%.
  • Licensed users of corporate version of Office 365 cloud-based software have gone up 15% yoy, resulting in revenue growth of 21%. Strong monetisation of Microsoft Teams.
  • Subscribers to the consumer version of Microsoft 365 increased 28%
  • Quarterly gaming revenue tops $5B for the very first time. Xbox content and services revenue jumped 40% yoy. Xbox hardware revenue gained 86% yoy.
  • LinkedIn revenue increased 23% yoy.

Blew Out Expectations With A Record Quarter
For the quarter ending Dec 2020, it was a broadbased-outperformance from the commercial cloud and enterprise productivity software behemoth. Microsoft achieved impressive growth across its 3 major business segments - Azure cloud services, Office 365 and Xbox gaming. It is riding on a wave of accelerated digital transformation which started last year due to the pandemic.

According to the management, corporate clients have accelerated their shift to the cloud. Gross margin for the commercial cloud business has gone up 4% as it continues to scale up. There is strong demand for software productivity tools that support remote workers. Next-gen gaming consoles, Xbox Series S and Series X have been sold out since their launch in Nov 2020. 

Sunday, January 3, 2021

Dividend Warrior's FY2020 Portfolio Update - Pandemic Crisis Badge Earned!


(Total cumulative dividends of $177, 067)

Top 12 Holdings (31 Dec 2020)

Portfolio Cost: S$498, 338
Portfolio Market Value: S$679, 335 
Portfolio Overall Unrealized Profit: +S$180, 997 (+36.3%)
Portfolio XIRR (FY2020): +6.7%
Dividends Collected (FY2020): S$26, 333
Current Warchest: S$56, 700

(*All figures are accurate as of 31 Dec 2020)

Portfolio Actions in 4Q2020:

  • Initiated positions in Venture Corp and VICOM in the Singapore market
  • Initiated positions in Apple, Tesla and Microsoft in the US market

Some Lessons Learnt From A Pandemic-Ravaged Year...

1. The World Is More Dependent On Tech Than Ever

In 2020, I learnt that a full-blown pandemic affects the global economy differently compared to a conventional recession. As almost the entire world began going into lockdown mode and closing airports back in March/April, certain industries like tourism, aviation, retail, F&B and hospitality fell off a cliff literally overnight  while others such as tech and e-commerce kept chugging along. It has been a 'K-Shaped' recovery ever since. Those industries which were decimated by the pandemic still struggle to find their feet despite unprecedented amounts of government support. 

On the other hand, the pandemic has accelerated the shift towards digitalization for businesses. Everyone seems to be migrating to the Cloud platform these days. Employees are making use of tech to work from home. Students are utilizing tech to study from home. Even tech giant Apple did their annual event virtually. In my opinion, their virtual event was arguably better than their live version! In a post-pandemic world, I believe that strong future growth can be found in 3 major themes - Electric autonomous vehicles, Cloud service platforms and Tech Ecosystems. Whether we like it or not, our personal and work lives would be more tightly interwoven with tech. The pandemic has sparked off a Fourth Industrial Revolution. Therefore, I have initiated positions in Apple, Tesla and Microsoft (ATM). Apple and Tesla potentially locking horns in the EV market is a mouth-watering clash.

2. Pandemic-induced Recession Has Further Widen The Wealth Gap

Talking about 'K-Shaped' recovery, I was truly bewildered by the outperformance of Propnex Group in 2020. The resilience of Singapore's property market was a positive surprise. As far as the private residential market is concerned, it's like the pandemic did not happen. This opened my eyes. Seems like the pandemic was just a mere inconvenience for those people with means. The recession did not affect their property-buying plans. However, on the other end of the spectrum, blue-collar workers in affected industries, who are living from paycheck to paycheck, are struggling to survive. They had to endure pay cuts, no-pay leave and even retrenchment. Sure, the various government covid-19 support schemes would go some way in helping this lower rung of the workforce. But it just goes to show that 2020 was also a year of the 'haves and have-nots'. It was the best of times, and the worst of times. 

Therefore, as we formulate our investment plans for 2021 and beyond, we need to be cognizant of this wealth gap. We should invest in companies that make premium products and services for consumers who are not too price-conscious. Target those consumers with high spending power and unshakeable brand loyalty. Take iPhone sales for example. Apparently, selling over-priced smartphones in a recession is a breeze!

3. The Importance Of Holding Power

At the depths of the sharp market correction in March 2020, my portfolio was down over S$200k! Almost one-third of my portfolio's market value was gone in a matter of weeks. The plunge seemed frightening but I did not sell out in fear. Why? Holding power. I was able to hold onto my long-term core positions because of 2 main reasons. Firstly, besides having sufficient emergency funds to cover my 1-year living expenses, I also have a warchest ready. Furthermore, my job was largely left unscathed by the pandemic. So, armed with a bagful of liquid cash as well as stable monthly income, I was able to HODL! It also helps that I understand my vested stocks well enough to know they would rebound eventually. Humanity always finds a way. Time in market is better than timing the market. Another badge added to my collection! The covid-19 badge is sitting nicely next to my US-China trade war badge earned in 2019. Hopefully, 2021 does not require me to earn a new badge. Fingers crossed!

Happy New Year! 

Dividend Warrior

(*You can check out my FY2019 portfolio review here )