"Adjusting the net income for inflation, Microsoft had negative real earnings growth of 7.2%"
I assume you base this off Microsoft's Net Income growth of 1.7%. But that includes one-off changes in "Other Income" (markt-to-market losseson equity investments) and the tax rate (up 3 ppt, including prior-year tax benefits from US-China tax treaty changes and a non-US tax audit).
As you mentioned, EBIT grew 7.5%, and even that was after a 5 ppt hit from currency. Constant-currency EBIT grew 14% year-on-year in Q2.
You overlooked the same factors in your similar comment about Alphabet's Net Income.
You are of course right. However even if we take the 7.5% EBIT growth, including inflation that is still a 2.8% decline. A company trading at 28x PE should not have declining real growth.
Alphabet's operating income was basically flat, so their decline was the inflation number. Which is not great for a company above 20 PE.
When investments last year where up - it lowered their PE and it will increase it this year.
It does not change the problem, that these earnings are still terrible.
Thanks Ross for the timely post. I was a bit upset by the market rally this week. It’s just the market going crazy again
Yes, it seems that fundamentals don't matter anymore. Sitting tight is really hard to do, but they will matter eventually again.
"Adjusting the net income for inflation, Microsoft had negative real earnings growth of 7.2%"
I assume you base this off Microsoft's Net Income growth of 1.7%. But that includes one-off changes in "Other Income" (markt-to-market losseson equity investments) and the tax rate (up 3 ppt, including prior-year tax benefits from US-China tax treaty changes and a non-US tax audit).
As you mentioned, EBIT grew 7.5%, and even that was after a 5 ppt hit from currency. Constant-currency EBIT grew 14% year-on-year in Q2.
You overlooked the same factors in your similar comment about Alphabet's Net Income.
You are of course right. However even if we take the 7.5% EBIT growth, including inflation that is still a 2.8% decline. A company trading at 28x PE should not have declining real growth.
Alphabet's operating income was basically flat, so their decline was the inflation number. Which is not great for a company above 20 PE.
When investments last year where up - it lowered their PE and it will increase it this year.
It does not change the problem, that these earnings are still terrible.