If you’re thinking about purchasing shares of Microsoft Corp., or already own them, you must to know the most important factors and issues pertaining to the business.
The numbers, below, illustrate how Microsoft MSFT, +2.02% stacks up against competitors, and the areas where it’s strengths and weak points lie. Be aware that no two companies are exactly alike, and even rivals can’t compete in every field. Investors should conduct their own research before making educated decisions about the future.
Key dynamics
Since Satya Nadella assumed the role of the CEO of Microsoft in February and completely altered the direction taken by this software giant founded by Bill Gates, Microsoft has grown into a major cloud computing player. The move is paying dividends for investors. The stock has risen 680 percent since then, including dividends, more than four times more than the return from those in the S&P 500 Index SPX, +2.43 percent.
There is a possibility of more performance out of the stock because the growth rate remains high despite the size of Microsoft. Microsoft has an $1.9 trillion in market value. Companies of this size struggle to sustain rapid growth due to the fact that they are so large. However, this software company that has been in existence for 46 years recorded 16.7% sales growth in the 4th quarter.
Microsoft’s server products and cloud services is a $41.4 billion business last year, expanded 25.8 percent in the fourth quarter of last year. The hottest product line includes Azure cloud services. Customers enjoy Azure because it can help them increase their efficiency and become more competitive. Therefore, they’ll continue to join up and increase their use once they sign on.
“We are witnessing the beginning of a second wave of digital transformation that is sweeping across every business and industry,” Nadella has said.
At $29 billion this year, Azure sales are growing 50% per year, says Goldman Sachs analyst Kash Rangan. (Microsoft does not provide the numbers nor provide predictions for Azure.) Microsoft also offers AI software, Microsoft Office suite products like Word, XL and Outlook and popular video-game hardware the LinkedIn professional networking site; and of obviously, Windows. There are four of these business lines are growing by 10% or more However, Windows and search have slowed down.
Did You Know? Stock Forecast have information on the Microsoft stock forecast 2025.
Geographic reach
Microsoft has a majority of its business outside the U.S. This is a good thing for investors since during times of robust, synchronized global growth like we see today the emerging markets tend to expand more quickly than the U.S.
“We have invested to bring our cloud services to even more customers, and include seven data center regions , including Asia, Europe and Latin America,” Nadella has announced.
An issue could be that an increased dollar will hurt Microsoft in that it could diminish the value of foreign earnings when they’re exchanged for greenbacks.
Profitability
In general, Microsoft does not grow as quickly as some of its competitors. However, the increased popularity of its cloud services and services helps to boost profits. Investors benefit from this, and it is a good reason to accept the lower growth in sales.
“Microsoft has pulled ahead of the crowd with its cutting-edge cloud platform,” says J.P. Morgan analyst Mark Murphy.
Inflow of money and cash
Companies with plenty of cash and a steady cash flow have an edge since they are able to not have to rely on banks or costly capital raises. This puts them in charge of their own destiny. Microsoft utilizes its cash to buy back shares and also pay dividends with a yield of 0.87%. But it’s also tapping the $132 billion cash stash to increase its growth through acquisitions.
For instance, Microsoft recently announced the purchase Nuance Communications. Nuance Communications, which gives Microsoft solid entry into the health care industry. Nuance provides AI (AI) that is used in the health care industry to analyze conversations and aid providers in communicating with patients.
The danger is that Microsoft may make poor acquisitions and waste cash that could be better spent giving it back to shareholders. As examples, Microsoft blundered in its purchases of Nokia’s mobile-phone business and the digital-marketing-services company aQuantive. This is why many investors would rather companies return cash to shareholders via buybacks and dividends, rather than risk wasting it.
Moat
Making investments that are excellent Warren Buffett loves companies with moats that are protected. Moats are a source of power in pricing and make it hard for competitors to win customers. Microsoft has a broad moat due to the following reasons, according to Dan Romanoff at Morningstar, that, along with Buffett also puts a large focus on moats in its analysis of companies.
For one, the majority of Microsoft business software has an extremely long learning curve, so customers get locked in to their software. Besides, swapping out software can disrupt an organization. This leads to increased costs when switching. Next, Microsoft products and services benefit from the network effect. As more users use Azure, Microsoft Office, LinkedIn and the like, these offerings become more beneficial to everyone since they connect more people together. Network effects bring value to customers, which discourages people from switching to another service.
The valuation of stocks and their performance
Microsoft shares have outperformed shares of its competitors over the last five years, but it has a modest price-to earnings (P/E) ratio in comparison to them. Keep in mind that relatively new companies such as CrowdStrike CRWD, +4.45% can have deceptively large P/E ratios due to the fact that they are still reinvesting a lot into their own operations, cutting out cash from earnings per share.
Sizing up Microsoft
The recent earnings report shows that the negative press surrounding Microsoft is probably overdone. Yes there is a chance that the Activision Blizzard deal is in jeopardy, leaving some uncertainty about the company’s metaverse strategy. With the company’s massive cash position, it will likely develop an alternative strategy.
In the end, the enormous expansion of Azure and the low value relative to its growth should bode well for Microsoft’s future prosperity.