Back to stock analysis basics! https://stacker.news/items/851506, #836811

How's Microsoft doing?!

IT's All Just Financial Engineering?!

Always has been, idiot. #1604239, #1598123

Last week, we wrote about how investors in the hyperscalers — Microsoft, Alphabet, Amazon, Meta and Oracle — are suddenly taking the decline in the companies’ free cash flow very seriously. (As, naturally, are the rating agencies — S&P Global cut the outlook on Meta to negative just the other day, citing “significant uncertainty around capex and free operating cash flow”.)
Microsoft stands out — it appears that, unlike its peers, it is not spending most or all of its cash profits that operations bring in. Correspondingly, Microsoft is the only one of the bunch with positive stock market returns over the last, bruising month:

and we care about this why?

Investors like to look at free cash flow because metrics like operating profit and net income capture investment spending only through a smoothed measure (depreciation) and do not capture swings in working capital items (such as inventory, receivables and payables) that can dramatically affect a company’s economic position. Hyperscaler investors are, understandably, focused almost exclusively on the investment just at present.

• GOOD free cash flow is "fundamental profitability of the business." Selling stuff, you know, the good ole' fashioned reason to be in commerce. (LOL, say the diluting treasury companies... you can just scam your shareholders! #1292636)
• BAD free cash flow is about financing (don't mention it to Saylor): terms, timing, BNPL on a corporate level, basically.

For example, a business might be able to pay its suppliers very slowly, while extracting instant payment from customers, which creates a growing stream of cash so long as sales are expanding.

"This sort of financial engineering is not cheating and the company is admirably transparent about it."

It is a source of real cash that can pay bills, be invested or simply collect interest. Indeed, there is a whole class of businesses that do nothing but co-ordinate various pools of capital with different financing arrangements. They are called banks. But free cash flow from financial engineering is often more volatile, less sustainable and harder to scale than cash that flows from profitable non-finance operations.

lol sick buuuuurn!

Dave Zion of Zion Research Group thinks that all of Microsoft’s free cash flow comes from financial engineering. He thinks this engineering takes four main forms:

The total of these and a few smaller adjustments is $75.3bn last year — more than 100 per cent of the company’s free cash flow. This does not mean that Microsoft is somehow hoodwinking investors. Powerful companies can extract good financial terms from suppliers, customers and investors and these terms have real value.

Financial engineer? YES, I AM! #1514971

TL;DR, if you wanna fake (some portion) of your success, you can just print shares. In Saylor's case, it's to pay for expenses and interest to other shareholders (=Ponzi structure); for Microsoft it's to pay for employee compensation and capex.

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