Wall Street is not enthused by Microsoft (MSFT).
One of Microsoft's greatest challenges has been to keep up with its status as a tech giant as it rubs shoulders with others of its kind, such as Google (GOOG) and Apple (AAPL). The only problem is that Microsoft has not been growing like these two peers. In an all-out effort to prove that it can keep up with the best and remain on top, it has pulled out all the stops for Windows 8. But it seems as if investors are just not convinced yet.
Can Microsoft take off the PC cloak that continues to cover its reputation and expand into new technologies? It has to turn around its dismal numbers first. This quarter, it struck out on both earnings and revenue, missing both estimates. While the majority of companies are missing revenue and beating earnings, this does not bode well for Microsoft in the eyes of investors. Windows, what Microsoft does best, has continued to fall by 22% and 33% year over year. If this is what Microsoft does well, then what should investors think about Windows 8?
CEO Steve Balmer has stated that Windows 8 would be the beginning of something new for the company, ushering in a new era of services and devices. Can it lift the company high enough to play ball with the big boys? It seems like an all or nothing situation for Microsoft here, but that scenario is supposed to play out for smaller struggling companies that cannot keep up and have huge revenue challenges. The risks to create something new are admirable and necessary in today's world as Windows 8 meshes PC usage with touchscreen technology.
As an investor, one thing I am considering with regard to Microsoft is the concept of change. Change is always hard. "Sometimes we are angry because some changes take too long to happen. When they finally happen, we get angry because they've happened" -- this quote sums up what Microsoft is going through.
Even though the company has come out with a new product, history teaches us that OS upgrades are a huge deal and not readily accepted right away. Investors get angry with Microsoft looking for change and innovation, and appear skeptical when it finally takes place. But Windows 8 is big. In a Forbes article by Richard Saintvilus, he writes the following about small businesses accepting Windows 8:
Recent surveys suggest that in the first six months of Windows 8, only 12% of small businesses have said they will upgrade.
I do not think investors should expect a big change in a short period of time. It is not like buying a new phone. Microsoft is becoming its own hardware creator also with the Surface tablet, but it is going to take time for companies to come around to a radical change like this. Investors should remain cautiously optimistic and very patient. Windows 8 is a solid and innovative move for Microsoft, but it is a slow, long-term system that will take time for companies to embrace. This is a huge change, and something this big is not embraced quickly.
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From a high of $31.25 toward the later half of September, the stock has been in a bearish trend for the last eight weeks, presently trading at about $26.75. That is about a 20% loss in the value of the stock. Is it at a point where we can expect a turnaround? Besides a spike up in early November that was quickly met with more bearish influence, the MACD has continued to turn down. If I observe the RSI indicator, I can see a that spike made it appear as if a positive divergence was taking pace, but I do not trust it because the spike was so extreme before it continued down. Again, if we disallow the spike, the trend has used the Bollinger Band as a definition of a strong move down. Notice how the middle band is used as resistance. This signifies a very strong move down. I do not see an end to the trend yet.