Is Microsoft The Ultimate Value Trap?
Amit Chokshi, CFA • 90 Comments
Amit Chokshi, CFA • 90 Comments
Is Microsoft The Ultimate Value Trap?
Amit Chokshi, CFA • 90 Comments
Amit Chokshi, CFA • 90 Comments
Dec. 21, 2015, 1:23 PM
- Microsoft (MSFT +0.6%) has bought Talko, a developer of iOS/Android apps that enable workgroups to collaborate via live and recorded voice and text. Terms are undisclosed.
- Notably, Talko was founded by Ray Ozzie, Microsoft's former CTO and chief software architect, and someone once referred to by Bill Gates as one of the best programmers on the planet. Ozzie won't be rejoining Microsoft, but the rest of Talko's team will be coming on board.
- Talko's technology will be integrated with both Skype and the Skype for Business (formerly Lync) unified communications platform. In addition to saving voice conversations, its apps let users tag and bookmark specific moments during a talk, and use a phone's camera to share related photos or live video. Saved content gets stored in the cloud, and cached on devices.
- Microsoft has made a string of productivity app purchases in recent years, as it tries to keep Google and upstarts such as Slack (Pending:SLACK) at bay. Past deals include Yammer (enterprise social networking), Sunrise (calendars), Acompli (e-mail), and Wunderlist (to-do lists).
- Separately, Barron's is out with another bullish column on Microsoft (it also had one in July). The paper once more praises Satya Nadella's cloud investments, argues Azure's hybrid cloud support acts as a selling point as it battles with AWS for enterprise accounts, and argues shares could rise 30% over the next 18 months.
- Last week: Goldman upgrades Microsoft, company buys data integration/analytics startup Metanautix
Dec. 18, 2015, 9:50 AM
- "We were wrong," writes Goldman's Heather Bellini while upgrading Microsoft (MSFT -0.5%) to Neutral after keeping shares at Sell amid a major 2-year rally. Her target has been hiked by $12 to $57.
- Bellini: "We are increasing our out year non-GAAP EPS estimates, driven primarily by faster gross margin expansion in Office 365 and Azure. While we still believe EPS consensus for FY17 and FY18 are too high, given the ongoing successful transition to the cloud we do not see the multiple coming under pressure."
- She adds several 2016 catalysts exist: A continued successful cloud transition, gross profit dollar growth (in spite of cloud-related margin pressure), EPS growth, the diminishing of headwinds related to weak business PC sales and the Office 365 transition (pushes out Office revenue recognition), and accelerating dividend growth.
- Shares are off slightly in spite of the upgrade. Bellini's upgrade comes a day after Microsoft made a fresh high of $56.79, before retreating a bit.
- Update: Some more Microsoft news: The company has bought Metanautix, a startup providing software that enables SQL databases to access and integrate numerous data sources for analytics purposes. Microsoft, which has made a string of analytics acquisitions in the Satya Nadella era (see Datazen and Revolution Analytics), plans to integrate Metanautix's technology with Azure and SQL Server.
Dec. 17, 2015, 5:13 PM
- Rambus (NASDAQ:RMBS) will work with Microsoft (NASDAQ:MSFT) researchers to explore future memory requirements for quantum computing. Rambus asserts its expertise in "high-bandwidth, power-efficient memory architectures, combined with Microsoft researchers knowledge of advanced system and data center design will be applied to drive new technology platforms."
- Though still potentially many years away from large-scale use, quantum computing remains a subject of fascination in the tech world for its potential to create systems orders of magnitude more powerful than ones relying on transistor-based CPUs, and has seen R&D efforts grow as Moore's Law increasingly shows its age and possibly approaches physical/atomic limits in the next decade.
- Google, NASA, and private D-Wave Systems recently proclaimed D-Wave's 2X quantum computer (costs $10M) was able to run an algorithm 100 million times as fast as a standard CPU. But for now, the number of applications D-Wave's system can be practically applied to remains limited. (more details here)
- Rambus has risen to $12.02 after hours.
Dec. 17, 2015, 5:07 AM
- Microsoft (NASDAQ:MSFT) is looking to strengthen its position in China again, this time by providing Windows 10 directly to the Chinese government.
- Through a joint venture with China Electronics Technology, the company will license, manage and provide technical support for the operating system in the public sectors' many agencies and institutions.
- Relations between Microsoft and Beijing have been rocky in recent years, with China banning Windows 8 use on government computers in May 2014 and then raiding the company's offices a few months later in an antitrust investigation.
Dec. 11, 2015, 2:49 PM
- NPD estimates U.S. physical retail video game sales fell 7% Y/Y in November to $993.9M, after having dropped 3% in seasonally weaker October to $349.4M. Aggressively-priced console bundles likely weighed on standalone game sales. Hardware sales rose 11% to $1.12B after being roughly flat in October, and peripheral/interactive toy sales rose 6% to $357.7M after rising 18% in October.
- Not surprisingly, Activision's (ATVI -3.2%) Call of Duty: Black Ops III was the month's top-selling game, followed by Bethseda's Fallout 4. However, Activision's Destiny: The Taken King fell out of the top-10, after coming in at #7 last month.
- Electronic Arts' (EA +1.2%) Star Wars: Battlefront, which recently saw a $20 GameStop price cut amid mixed critic and user reviews, was #3. EA also took the #4, #6, and #7 spots via Madden NFL 16, FIFA 16, and Need for Speed. Madden and FIFA were also #4 and #6 last month.
- Take-Two's (TTWO -1%) NBA 2K16 dropped three spots to #5, while WWE 2K16 fell out of the top-10. Ubisoft's (OTCPK:UBSFY) Assassin's Creed: Syndicate and Just Dance 2016 were #9 and #10; neither was in the top-10 last month.
- Microsoft's (NASDAQ:MSFT) Halo 5: Guardians fell from #1 to #8. With Halo 5 providing less of a lift to Xbox One sales, the PlayStation 4 (NYSE:SNE) regained its status as the top-selling U.S. retail console.
- EA remains green following the data and news the company is entering the eSports market. Activision (like GameStop) is underperforming amid a 1.8% Nasdaq drop, and Take-Two is down modestly.
- Last month: Black Ops 3 sells $550M in opening weekend
Dec. 3, 2015, 5:31 AM
- Microsoft (NASDAQ:MSFT) declares $0.36/share quarterly dividend, in line with previous.
- Forward yield 2.61%
- Payable March 10; for shareholders of record Feb. 18; ex-div Feb. 16.
Dec. 1, 2015, 9:27 AM| Dec. 1, 2015, 9:27 AM
- November monthly performance was: +0.59%
- 52-week performance vs. the S&P 500 is: -1%
- $0.06 in dividends were paid in November
- Top 10 Holdings as of 10/30/2015: Exxon Mobil Corporation (XOM): 5.02%, Microsoft Corp (MSFT): 4.33%, Apple Inc (AAPL): 4.2%, Altria Group Inc (MO): 3.52%, PepsiCo Inc (PEP): 2.97%, McDonald's Corp (MCD): 2.88%, Intel Corp (INTC): 2.24%, Home Depot Inc (HD): 2.2%, International Business Machines Corp (IBM): 2.03%, AbbVie Inc (ABBV): 2.0%
Dec. 1, 2015, 7:09 AM| Dec. 1, 2015, 7:09 AM
- November monthly performance was: +0.26%
- 52-week performance vs. the S&P 500 is: -4%
- $0.16 in dividends were paid in November
- Top 10 Holdings as of 10/30/2015: Apple Inc (AAPL): 3.52%, Microsoft Corp (MSFT): 3.36%, Exxon Mobil Corporation (XOM): 3.27%, General Electric Co (GE): 3.01%, AT&T Inc (T): 2.91%, Verizon Communications Inc (VZ): 2.75%, Johnson & Johnson (JNJ): 2.22%, Wells Fargo & Co (WFC): 2.15%, Chevron Corp (CVX): 2.1%, Pfizer Inc (PFE): 2.1%
Nov. 25, 2015, 11:18 AM
- During yesterday afternoon's FQ4 earnings call (transcript), HP Enterprise (HPE +3.1%) CEO Meg Whitman disclosed Microsoft Azure (MSFT -0.5%) "will become a preferred public cloud partner" for HPE, through a partnership that will be detailed next week. In return, HPE will "serve as a preferred provider of Microsoft infrastructure and services for its hybrid cloud offerings."
- The deal comes a month after HP announced it's shutting down its public cloud services ops, rather than compete head-on with well-established players such as Amazon (the market leader), Microsoft (#2), IBM, and Google. The company, whose on-premise IT service ops have been pressured by cloud adoption - enterprise services division revenue fell 9% Y/Y in FQ4 to $5B - added it's still committed to offering private and managed cloud services.
- For Microsoft, the deal gives Azure the backing of HP's still-massive enterprise sales and IT services workforces. It follows a multifaceted Azure partnership with server OS rival Red Hat. Microsoft reported Azure revenue rose over 100% Y/Y in calendar Q3, but didn't give a figure.
- HPE continues trading higher after beating depressed FQ4 sales estimates with the help of positive x86 server and networking hardware growth, and reiterating its FY16 EPS guidance (while guiding FQ1 below consensus). Analyst reactions have been mixed - bulls are trumpeting a low valuation and the potential for improved execution following HP's breakup, while bears argue sales and cash flow pressures remain substantial.
Nov. 20, 2015, 3:41 AM
- Volvo (OTCPK:GELYY) has struck a deal with Microsoft (NASDAQ:MSFT) that will see the two companies work together in developing driverless vehicles and give potential car buyers an interactive shopping experience using the latter's HoloLens headset.
- Customers who come into a Volvo showroom will be able to use HoloLens to view a car in 3D, change colors and see how many of its features work.
- Although details were scarce in other areas, the move highlights the trend for technology companies to jump into the autos space.
Nov. 17, 2015, 4:43 PM
- Wanting to get a larger portion of corporate IT security budgets that have seen healthy growth as companies react to a slew of major hacking incidents, Microsoft (NASDAQ:MSFT) has launched an Enterprise Cybersecurity Group (ECG) promised to deliver "security solutions, expertise and services that empower organizations to modernize their IT platforms, securely move to the cloud, and keep data safe."
- Much like many other enterprise IT firms, Microsoft is looking to pair security software with human and cloud-based services (security appliance vendors also bundle hardware). ECG's offerings include security assessment, monitoring, threat-detection, and incident-response services. Meanwhile, a new Cyber Defense Operations Center will feature dedicated teams 24x7 to respond to security incidents, and is said to provide "direct access" to thousands of professionals within Microsoft for dealing with security threats.
- The software giant has also announced it's testing Azure Security Center, a Web-based console that works with third-party hardware and software to give IT admins an overview of their company's Azure security profile, and uses analytics to detect and respond to threats. Satya Nadella states such features could also be used for on-premise security, and to protect services running on third-party clouds.
- Microsoft exec Bret Arsenault: "Microsoft’s unique insights into the threat landscape, informed by trillions of signals from billions of sources, create an intelligent security graph that we use to inform how we protect all endpoints, better detect attacks and accelerate our response." In a blog post, he highlights the security tools provided via Windows 10, Office 365, Azure, and the Enterprise Mobility Suite (EMS), and claims Microsoft spends over $1B/year on security R&D.
- In other Microsoft news, Bob Stutz, the exec in charge of the company's Dynamics CRM app business, is leaving the company. Re/code reports Stutz is joining Salesforce. Dynamics CRM R&D lead Jujhar Singh will replace Stutz.
Nov. 12, 2015, 6:15 PM
- ValueAct's sale, declared to be carried out for "portfolio management purposes," lowers its stake in Microsoft (NASDAQ:MSFT) to 56.6M shares, or 0.7%. (Form 4 filing)
- Is this simply a case of profit-taking? ValueAct took a $2B stake in Microsoft in April 2013, a few months before Steve Ballmer announced his retirement plans. Shares have risen 92% since.
- ValueAct chief Mason Morfit won a board seat in 2014. Around that time, Bloomberg reported ValueAct is pushing Microsoft to focus on its enterprise and cloud offerings, and to de-emphasize consumer/hardware products. Though still quite committed to several hardware lines, Microsoft did announce major job cuts and a narrower focus for its phone unit four months ago.
- MSFT -0.6% after hours to $52.98.
Nov. 11, 2015, 7:30 PM
- Walt Disney (DIS -0.8%) launched Disney Infinity 3.0 for the Apple TV today, and unlike many games for the box, it comes with a chunky controller usually seen with higher-end gaming consoles.
- That could prove a critical test of whether the platform could support more intense gaming, and present real competition to the top two consoles made by Sony (NYSE:SNE) or Microsoft (NASDAQ:MSFT).
- Most all games on Apple TV are controlled by the device's slender remote. But the Nimbus controller made by SteelSeries (specifically for Apple's device) features analog sticks and D-pads familiar to console gamers, and sells for $50 (but at a $15 discount in the Infinity 3.0 bundle).
- Disney's entry in the toys-to-life category has underperformed compared to Activision Blizzard's Skylanders -- also now on Apple TV -- but the combination of content brands that Disney can leverage for the free-form game, including Marvel and Star Wars, has kept hopes high for the platform.
- Previously: Disney Infinity 3.0 launches with 'Star Wars' characters (Aug. 31 2015)
Nov. 9, 2015, 1:42 PM
- Secure Islands' software automatically classifies, sets access policies for, and (if needed) encrypts unstructured data (documents, e-mails, photos, etc.) when it's created or otherwise first enters a company's IT infrastructure. It also provides an auditing/reporting tool for providing an overview of a company's data usage.
- Microsoft (MSFT -1.8%) is buying Secure Islands for an undisclosed sum. ZDNet reports the purchase price is ~$77.5M; Globes reports it's between $100M-$150M.
- Microsoft: "This acquisition accelerates our ability to help customers secure their business data no matter where it is stored – across on-premises systems, Microsoft cloud services like Azure and Office 365, third-party services, and any Windows, iOS or Android device." Secure Islands' technology will be integrated with Microsoft's cloud-based Azure Rights Management service, which (for $2/user/month) protects e-mails, Office docs, and other content from unauthorized access.
- Secure Islands is Microsoft's third acquisition of an Israeli security tech firm in the last year. The others are cybersecurity/identity-protection software vendor Aorato, and cloud/SaaS app security software vendor Adallom. The company has also recently bought two other Israeli companies: Text-analysis/e-discovery software firm Equivio, and Surface stylus chip developer N-trig.
- Secure Islands already has a partnership with Adallom. Varonis (VRNS -1.4%), a leader in the unstructured data management/governance software space, is a rival, as are EMC and Dell.
Nov. 4, 2015, 10:24 AM
- Going forward, Red Hat Enterprise Linux (RHEL) will be "the preferred choice for enterprise Linux workloads" on the Microsoft Azure cloud platform. In addition, Microsoft (MSFT +0.7%) and Red Hat (RHT +1.1%) are "working together to address common enterprise, ISV and developer needs for building, deploying and managing applications on Red Hat software across private and public clouds."
- Other aspects of the deal: 1) Azure will also support Red Hat's JBoss middleware and Web server software, Gluster scale-out storage software, and OpenShift cloud app development platform (PaaS). 2) The companies will offer joint support to enterprises using Azure and Red Hat's software, including for hybrid clouds. 3) Users of Red Hat's CloudForms cloud management software will be able to manage RHEL instances running on both Azure and Microsoft's Hyper-V virtualization platform. 4) Developers will have access to Microsoft's .NET framework across Red Hat's offerings.
- Microsoft already supported Linux on Azure - support for a Linux variant known as CoreOS was announced last year - but until now hadn't reached a deal with the world's biggest enterprise Linux vendor. RHEL and other Linux variants, of course, compete with Windows Server in the server OS market.
- Azure is widely believed to the world's second-largest public cloud platform, behind Amazon Web Services. Microsoft stated in its calendar Q3 report Azure revenue was up over 100% Y/Y, but didn't give a figure.
- Update: Some other Microsoft news: Halo 5: Guardians has produced first-week sales of more than $400M. The sales bring lifetime revenue for the Halo franchise above $5B.
Nov. 3, 2015, 4:17 AM
- Despite many firms expanding their cloud storage options, Microsoft (NASDAQ:MSFT) is shrinking its offerings, the company wrote in a blog post late Monday.
- Citing user abuse, Microsoft said it would end unlimited OneDrive storage plans and make the following changes starting in early 2016:
- Current unlimited users will be capped at 1TB; It also plans to eliminate 100GB and 200GB plans, and offer a reduced 50GB plan for $1.99 per month instead; Its free offering will be cut from 15GB down to 5GB for all users, current and new.
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