Microsoft (MSFT) has been in the news a lot recently. Long time CEO Steven Ballmer surprised investors by announcing he would be stepping down within a year in late August. Then the giant from Redmond stepped up and bought Nokia's (NOK) handset division and licensed thousands of its patents. Not content with offering these two catalysts in rapid succession, the company announced it was hiking its dividend by an impressive 22% and reauthorized and extended its $40B stock repurchase program.
It was a lot of news for shareholders to digest in a short period of time. Understandably lost in the shuffle was how much progress Microsoft is making with its cloud offerings. Revenue and customer growth is quite astounding in fact. From a recent note from Morgan Stanley "In FY13, Office 365 seats were +350% Y/Y and is now at $1.5B rev. run rate, Azure grew 200% and CRM Online was +80% Y/Y."
Microsoft is now the second largest cloud software provider in the world behind Salesforce (CRM). The company's cloud offerings are also a key reason the company's revenue is projected to grow 5% to 7% both this fiscal year and in FY2014 despite a continuing decline in global PC sales.
The company does not receive many plaudits for its rapidly growing cloud offerings but they are a critical part of Microsoft's future growth prospects. Ironically, the stock sold off over 2% on Friday. Partly this was due in part to the overall decline in the market. However, some of the selloff was triggered by Microsoft stating it was raising its cap ex budget (mainly to invest in growing its fast growing web services and cloud product offerings).
I find it very ironic that Amazon (AMZN) can consistently deliver little earnings or operating cash flow as it is constantly
spending investing in building its infrastructure. Not only do investors overlook this lack of earnings growth as the company "invests" in its future but bid up the shares which are now going for over 100x forward earnings. Microsoft should get some similar benefit of the doubt for its investment in growing its cloud businesses. In addition, shareholders at least get paid a nice 3.3% dividend yield while watching the company make progress in the area.
Obviously the main catalyst for Microsoft over the coming months is who will be named to succeed Ballmer in guiding the company in the future. Hopefully it will be someone that can continue to drive Microsoft's rapid growth in the "cloud" among one of his/her many skillsets.
MSFT is a solid value stock while we await news on its next CEO, how the Nokia integration works out and any further shareholder friendly actions the company will enact especially given how activist investor ValueAct seems to be gaining traction within the company.
The company has over $70B in net cash & market securities on the balance sheet, giving it significant resources to invest in growing its own business lines, make strategic acquisitions and/or continue to buy back stock and increase dividends. Taking out its net cash and the stock goes for ~8x forward earnings. ACCUMULATE