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Sunday, July 24, 2016

Reasons to be bullish on Microsoft

Microsoft has seen its share price surged recently, especially with its recent earnings announcement that saw it beat the analysts' estimates.

It appears that the company is on track for growth and profitability.

Microsoft CEO Satya Nadella refocused the company’s core strategy from devices and services, redefining it as a productivity platform for a “mobile-first, cloud-first-world.” In other words, Nadella explained that the company’s strategy is focused on empowering people to become more productive by delivering a cloud that connects all devices.


Microsoft stock has traded between $39.72 and $56.85 per share over the past 52 weeks and has gained almost 20% in stock value over the past year, with a market capitalization of $432.39 billion. Only Alphabet (Google) and Apple actually beat Microsoft on that front.

The company reported that its earnings increased 11% to $0.69 per share and its revenue rose two percent to $22.64 billion year-over-year, which is pretty impressive given that it beats the Wall Street analysts expectations of $0.58 per share on $22.15 billion in revenue.

“This past year was pivotal in both our own transformation and in partnering with our customers who are navigating their own digital transformations. The Microsoft Cloud is seeing significant customer momentum, and we’re well positioned to reach new opportunities in the year ahead,” said Microsoft CEO Satya Nadella during the earnings release for the company's fourth quarter financial year 2016.


One of Microsoft's key driver for its revenue has been its cloud business and with only two companies setting the tone for the cloud computing platform for the enterprise (the other one being Amazon), it is expected to grow by more than 80% for at least two or three years (according to Trip Chowdhry, managing director of Global Equities Research).

During a conference call, Microsoft CFO Amy Hood said the company would focus on improving the profitability of its commercial cloud business.

“We expect the commercial cloud gross margin percentage and dollars to materially improve next fiscal year. We have invested heavily to build share, expand geographically and ensure world-class support and reliability for our commercial customers," she said.


Perhaps one of the biggest question mark remains: what and how will LinkedIn contribute to Microsoft? It is still early days but the world's largest professional social network, for $26.2 billion is expected to accelerate Microsoft's growth, particularly in its Office 365 and "Dynamics" software.

History may not be too favourable on Microsoft's acquisition but with Nadella making the right moves so far, who's to say this is not going to be another magic that he could pull out.

Of course, there are a lot of reasons to be bullish about Microsoft, given its strong historic startup and how the company has moved away from its legacy. We have been following the company for a while now, given its progress in the cloud business and here's what we would like to recap for our readers:

Back in 2014, we talked about Microsoft Corporation making all the right friends with Satya Nadella took the helm of the company from Steve Ballmer, not forgetting that the progress was very fast because in 2013, Salesforce actually labelled the software giant as the "evil empire"....but Nadella was able to strike a partnership with them.

Recap of our post back in 2014
Of course, we know that with Nadella, the direction is definitely towards cloud and in 2015, we actually showed some statistics based on its earnings results back then that suggest Microsoft is going the right direction.

Recap of our post back in 2015
The recent 4QFY16's earnings results for Microsoft simply suggests to us that the company is really on the move now. We have seen progress for two years now and if anything at all, the recent results just show that our expectations of the company's growth and profitability has been on track.

And beginning of the year, we talked about the "Windows 10" vision. And how the company is giving away free upgrade until end of this month. 

Recap of our Windows 10 post beginning of this year

And honestly, I'm impressed at how consistent the company has been in pushing for Windows 10. Of course, there are a lot of bad publicities and mistakes along the way especially when it seems that the company has crossed the line in terms of privacy and how they push for the upgrade.

Windows 10 installation stood at over 350 million as of its recent's announcement.

We think that it's still early to tell how well is the "always improving Windows" vision of Nadella's will turn out to be but so far, the company has shown us that there are reasons to be bullish of its company.

At the end of 2013, Microsoft was trading at $37.84.

End of July 2014, Microsoft was at about $44.50.

And in October 2015, the company's breach the $50 mark.

Now, it is trading at $56.57.

I'm not sure about you but it's bullish enough for me.

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