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
Oct. 14, 2015, 9:15 PM
- Demand is still strong among teens for the newest generation of videogame consoles, Piper Jaffray says -- and that's good news for leading game makers like Activision Blizzard (ATVI +0.4%) and Electronic Arts (EA +3.1%).
- Uptake of the Xbox One (MSFT -0.5%) and PlayStation 4 (SNE -1.5%) consoles "is at the highest level we have seen, reinforcing our expectation for a much more rapid pace than prior-gen" consoles, says analyst Michael Olson, a "clear positive" for Activision, EA, Take-Two Interactive (TTWO +0.2%) and retailer GameStop (GME -1.1%).
- The firm's semiannual survey found 73% of videogame-playing teens own an Xbox One or PlayStation 4, or intend to get one -- up from 70% last spring and 67% last fall. Some 39% currently own one of the newer consoles, up from 37% in the spring and 26% last fall.
- "We believe the combination of next-gen console uptake and a robust lineup of AAA titles will lead to sustainable software growth through second-half 2015 and into 2016," Olson writes.
- Mobile players are stable, but the number who'll pay is rising as well. Some 24% of teens who play mobile games by makers like Glu Mobile (GLUU +1.2%) and King Digital (KING -0.4%) say they spend in-game money, the survey said, up from 21% in the spring.
Oct. 13, 2015, 12:24 PM
- The enemy of my enemy is my friend: Yandex (NASDAQ:YNDX) has struck a deal with Microsoft (NASDAQ:MSFT) to act as the default home page and search engine for the Edge and Internet Explorer browsers on Windows 10 devices in Russia, Turkey, and Ukraine. The agreement follows a similar deal between Microsoft and Baidu for China.
- The deal gives Yandex a shot in the arm as it tries to halt Google's (GOOG, GOOGL) share gains: LiveInternet estimates Google's Russian search share has risen from 27% in Jan. 2014 to 35% last month, while Yandex's has fallen from 62% to 57%. Yandex jumped in September after Russian regulators declared Google's Android app/service bundling requirements (have done much to strengthen the company's mobile search position) violated competition rules.
Sep. 11, 2015, 2:46 PM
- A buyout rumor has once more given a lift to AMD (AMD +9.8%): This time, Fudzilla (citing "industry sources") states Microsoft (NASDAQ:MSFT) is "seriously talking" to the hard-luck chipmaker about acquiring it.
- A number of AMD buyout rumors have come and gone over the years without panning out. KitGuru reported in June Microsoft "may acquire" AMD.
- AMD was previously trading near breakeven in spite of an upgrade to Market Perform from Bernstein's Stacy Rasgon, who argued bad news has been priced in and that "the possibility of a lifeline may be growing."
Aug. 26, 2015, 4:21 PM
- The Nasdaq has closed its latest ultra-volatile day up 4.2%. Chip stocks, hit hard in recent weeks amid China/inventory concerns, were among the standouts (SOXX +5%) during the rally: Big gainers included Nvidia (NVDA +7.5%), Skyworks (SWKS +6.9%), Qorvo (QRVO +5.9%), Xilinx (XLNX +6.3%), Analog Devices (ADI +7.1%), Linear (LLTC +6.1%), SanDisk (SNDK +7.4%), ON Semi (ON +6.2%), and Cavium (CAVM +5.6%).
- Cybersecurity plays and various other enterprise tech names also did well. Standouts included HP (HPQ +5.5%), Palo Alto Networks (PANW +6%), Rackspace (RAX +9.8%), Red Hat (RHT +5.9%), KEYW (KEYW +8.1%), Brocade (BRCD +5.6%), ShoreTel (SHOR +5.7%), Violin Memory (VMEM +14.7%), and Rapid7 (RPD +7.2%).
- In addition to HP, tech large-caps turning in big gains included Apple (AAPL +5.7%) Microsoft (MSFT +5.5%), Google (GOOG +7.7%), and Intel (INTC +5.5%). Google benefited from a Goldman upgrade.
- KEYW announced a CEO change yesterday afternoon. HP and Brocade are adding to last week's post-earnings gains. Skyworks/Qorvo peer Avago has posted an FQ3 beat after the close.
Aug. 24, 2015, 8:03 AM
- Tech stocks in the U.S. are sharply lower in early action after the sector fell just as hard as broad market averages in China and Japan. Tech heavyweights aren't getting spared amid the carnage.
- Google (NASDAQ:GOOG) -4.1% premarket to $587.31.
- Apple (NASDAQ:AAPL) -5.1% to $100.38.
- Microsoft (NASDAQ:MSFT) -3.9% to $41.41.
- Facebook (NASDAQ:FB) -3.4% to $83.05.
- Yahoo (NASDAQ:YHOO) -6.6% to $30.75 and Alibaba (NYSE:BABA) is down 8.7% to $62.26 as concerns over growth in China mount.
- The Nasdaq 100 futures contract is off 4.8%.
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Jul. 22, 2015, 3:07 PM
- Microsoft (NASDAQ:MSFT) hasn't seen any upgrades/downgrades after beating FQ4 estimates, reporting strong cloud growth and major Windows/traditional Office declines, and once more providing conservative guidance. A handful of firms have tweaked their targets.
- Bernstein's Mark Moerdler (Outperform), among Microsoft's defenders, notes the commercial cloud annual run rate ($8B) rose 27% Q/Q, and that cloud margins also improved. "We estimate that the Gross Margin for each incremental dollar of revenue, given the current mix of SaaS, PaaS, and IaaS is at a minimum~70%, if not greater, with long term SaaS margins of 86%+ and Azure margins equivalent to Amazon’s at similar scale."
- Credit Suisse's Philip Winslow (Outperform): "We believe Microsoft can return to double-digit EPS growth by (1) continued rationalization of its cost structure, (2) further divestitures/exits of non-core businesses, (3) optimization of its capital structure, (4) stabilization in Windows pricing, and (5) an accelerated shift to Office 365 ... Furthermore, we believe that Microsoft Azure will emerge as the clear #2 market share player in public IaaS [behind Amazon] and will arise as the leader in public PaaS.”
- Cowen's Tim Arcuri notes Microsoft's Devices & Consumer licensing guidance (covers Windows OEM and traditional consumer Office licensing, as well as Android royalties) implies ~9.4% Q/Q growth, which in turn points to a healthy (Windows 10-driven) rebound in PC demand. D&C licensing was down 34% Y/Y in FQ4 to $1.7B, thanks to Windows/Office declines and the end of Nokia payments.
- Raymond James' Michael Turtis (Market Perform) is worried about slumping commercial on-premise software sales. "Commercial license $10,451 million (-7%) missed consensus $10,550 million (-6%), guidance $10.5-10.6 billion on both Office and Server weakness, with Server decelerating to 5% CC from F3Q’s +13% ... Commercial license billings declined 12% y/y, below revenue decline of -7%, though some of this could be transition to cloud ... We reduced our [FY16] estimates across product categories given the broader slow down and took down our Server product estimates given persistent forex impact and, possibly, the first signs of broader cannibalization of Server by Azure cloud."
- Prior Microsoft coverage, CC transcript
Jul. 21, 2015, 7:38 PM
- Microsoft (NASDAQ:MSFT) guides on its FQ4 CC for its various reporting segments to collectively see FQ1 revenue of $20.7B-$21.3B, below a $22.8B consensus. The company has been guiding cautiously for several quarters.
- Forex is expected to have a 5% impact on FQ1 and FQ2 sales growth. Microsoft promises "Windows 10 momentum" will provide a lift during the second half of FY16 (ends June '16), and that Bing (responsible for major losses in past years) will turn profitable during the year. In the wake of the company's latest job cut announcement, FY16 operating expense guidance has been cut to $32.1B-$32.4B. The tax rate is expected to be at 24% (+/- 1%).
- Ahead of the job cuts and the related narrowing of Microsoft's phone efforts, phone revenue fell 38% Y/Y to $1.23B (feature phone decline), with a negative gross margin. Lumia units rose 10% to 8.4M, but Lumia revenue fell due to a lower ASP.
- Also: 1) Though revenue fell 5% Y/Y, the unearned revenue balance rose 1% Y/Y to $25.3B, and the contracted but not billed balance rose by ~$500M to $24.5B. 2) Office 365 consumer subs rose by nearly 3M Q/Q to 15.2M; traditional Office consumer revenue fell 42%. 3) Xbox shipments rose 30% to 1.4M. 4) Azure revenue and compute usage rose by triple digits Y/Y, and enterprise mobility management (EMM) software customers rose by nearly 90% to 17K+. 5) FQ4 capex totaled $1.7B.
- Microsoft is down to $45.38 in AH trading, maintaining the losses seen after the FQ4 report was published.
- FQ4 results, details, guidance (.ppt), earnings slides (.ppt)
Jul. 17, 2015, 5:41 PM
- Videogame sales grew in June, with new physical games and hardware up 18% in the U.S. Y/Y, to $869.4M, according to NPD. That's a rebound from May's 13% decline.
- The industry showed growth in all three major areas: Hardware sales were $313.1M (up 8%); accessories were $210.7M (up 34%); and game software sales were very strong at $345.5M (up 21%, though against a weaker 2014 comp) by calling on the Batman. The settling-in of next-gen consoles continues, as it was the fourth month of Y/Y software increases.
- Batman: Arkham Knight (TWX -1.4%) led the software charts and became the year's second-best seller out of the gate, behind another Warner Bros. release, Mortal Kombat X.
- June was Warner's month: Its other titles Lego Jurassic World, The Witcher 3: Wild Hunt and Mortal Kombat X joined Batman in the top 10 at Nos. 3, 4 and 8 respectively. Warner's dollar sales are up 217% vs. the first half of 2014, making it the top corporate publisher this year, says NPD's Liam Callahan.
- In longer-term holdouts, Minecraft (NASDAQ:MSFT) came in at No. 6, Grand Theft Auto V (TTWO +4%) was No. 7, Take-Two's NBA 2K15 was No. 9 and Call of Duty: Advanced Warfare (NASDAQ:ATVI) No. 10.
- Next-gen consoles like PS4 and Xbox One led the way in hardware growth, up 15%. The PS4 (SNE +0.5%) led console sales again, the company said, as it has for every month this year except for April.
Jul. 13, 2015, 3:03 PM
- Microsoft's (MSFT +2.2%) Cortana Analytics Suite takes aim a burgeoning market for enterprise big data/analytics software/services. It includes the Cortana virtual assistant, the Power BI business intelligence/data visualization software platform (just refreshed), face, text, speech, and vision analytics APIs, Azure machine learning and data warehousing services, and Azure recommendation and forecasting APIs.
- Microsoft exec Joseph Sirosh: "We actually found customers are stitching all of these pieces together to do a lot of these integrated scenarios that cover everything from looking at what happened in the past to predicting to driving some specific actions within an automated system ... if we brought these things together in an integrated suite that worked very well together, it makes for a lot of high-value scenarios."
- The suite will be available this fall on a subscription basis. It follows Microsoft's acquisitions of mobile BI/data visualization startup Datazen and statistical analytics software firm Revolution Analytics. BI/data visualization software firms Tableau (DATA -0.1%) and Qlik (QLIK +1.6%) are among the companies Microsoft is competing against.
- Also unveiled: GigJam, a productivity service that that uses screen-sharing and (with Cortana's help) the pulling of data from a variety of Microsoft apps to create a shared workspace. It relies on a mixture of Azure services and PC/mobile apps. Satya Nadella: “This is a glimpse of what can happen when we break down the walls between devices, applications, and people."
- With the help of a 1.4% Nasdaq gain, Microsoft has topped $45. FQ4 results arrive on July 21.
- Earlier: Microsoft strikes Azure deal with Rackspace
Jul. 13, 2015, 11:52 AM
- Rackspace (RAX +3.6%) is partnering with Microsoft (NASDAQ:MSFT) to provide managed support, monitoring, and "architectural guidance" services to companies looking to deploy Microsoft's Azure cloud infrastructure/app (IaaS/PaaS) platform, which supports public, private, and hybrid cloud deployments.
- The companies will also offer a hybrid cloud solution that combines Azure, Rackspace's private cloud solution, and Microsoft's Cloud Platform (a collection of products for deploying private clouds).
- Rackspace, whose IaaS offerings compete with Azure and has often called its "fanatical" customer support as a differentiator, is offering both an Azure infrastructure and support bundle (effectively acts as a reseller arrangement), as well as a support-only option. The services will initially be provided to U.S. clients; international availability arrives in 2016.
- Azure is believed to be the world's second-largest IaaS/PaaS platform, trailing only Amazon Web Services.
Jul. 7, 2015, 9:29 AM
- Following checks, Chardan Capital thinks Himax (NASDAQ:HIMX) is supplying LCoS microdisplays for Microsoft's HoloLens augmented reality headset, with 2x as much content as it has for Google Glass. It also states checks indicate Microsoft (NASDAQ:MSFT) will announce HoloLens' availability later this month; no formal launch date has been given yet.
- The firm has upgraded Himax to Buy from Sell - it downgraded to Sell on May 29, when Himax was at $6.30 - and hiked its target all the way to $13 from $4.
- Himax has risen to $8.15 premarket. Shares jumped in January when Microsoft originally unveiled HoloLens. The headset's display tech hasn't yet been officially announced.
- Update: More details here. Chardan's Jay Srivatsa: "If the timeline of MSFT's [HoloLens] introduction is consistent with our checks, we could expect HIMX to begin modest ramp in Q3:15 and more so in Q4:15 with full production in FY:2016." He sees a $20M-$30M 2H15 revenue opportunity, and an $80M-$120M 2016 opportunity.
Jun. 29, 2015, 11:22 PM
- KitGuru, not a site with a long track record of delivering M&A scoops, reports (citing a source) Microsoft (NASDAQ:MSFT) "may acquire" AMD.
- It adds Microsoft approached AMD, which provides the APU for both the Xbox One and PS4, about a buyout several months ago, and that "the result of the talks is unclear."
- AMD rose 3% in AH trading to $2.41 on the rumor, after having fallen 5.3% in regular trading thanks to a broad market rout. Shares also fell sharply on Friday, following Micron's results/guidance.
- Back in 2012, BSN reported Intel is thinking of acquiring Nvidia and making Nvidia chief Jen-Hsun Huang its next CEO. That rumor didn't quite pan out.
Jun. 16, 2015, 12:37 PM
- Going forward, Box (BOX +3.6%) clients will be able to "browse, open and edit Office Online files directly from Box, as well as automatically save all changes made in Office Online back to Box in real-time." By doing so, they'll be able to leverage Box's collaboration tools and security/compliance features while working on Office files.
- Box has already worked with Microsoft (NASDAQ:MSFT) to allow files stored via Box to be opened via Microsoft's PC and mobile Office apps, and to be saved back to the cloud once a user is finished. The integration work comes in spite of the fact Box competes with Microsoft's SharePoint collaboration platform and OneDrive cloud storage platform; unlimited OneDrive storage is provided to Office 365 subs.
- Microsoft also has an Office integration deal with Dropbox. “We are company agnostic when it comes to who we integrate with,” says Microsoft exec Jared Spataro.
- Box has caught a bid on the news. Shares jumped last week in response to Box's FQ1 beat and FQ2/FY16 guidance, but soon gave back their gains.
May 22, 2015, 1:19 PM
- CNBC's David Faber reports Microsoft (MSFT -0.7%) held "significant talks" earlier this spring about acquiring Salesforce (CRM +2.4%), but the companies "remained far apart on a price." Microsoft was reportedly willing to offer $55B for Salesforce (current market cap of $49.3B); Salesforce CEO Marc Benioff is said to have wanted as much as $70B.
- Faber adds the talks aren't expected to restart anytime soon. Aside from the price difference, Satya Nadella was reportedly "somewhat reluctant to pull the trigger on a deal of such size and consequence for his company."
- Bloomberg reported on May 5 Microsoft is "evaluating a bid" for the cloud CRM software giant - Microsoft's name had already loomed large in speculation about a rumored suitor. Reuters reported soon afterwards Microsoft wasn't currently weighing an offer.
- Salesforce has spiked higher on the report. Shares are up 6.3% since the company posted an FQ1 beat and reported 31% Y/Y deferred revenue growth on Wednesday afternoon.
May 19, 2015, 12:11 PM
- FBR's Chris Rolland, after talking with Intel (INTC -1.2%) IR chief Gary Willihganz: "While excess PC inventory dynamics were well known exiting 2014, we believe many investors did not expect additional PC inventory drain into the Win10 release. Intel was careful to explain these nuanced inventory dynamics, which we believe may have also been a contributor to the weaker-than-expected ODM shipments witnessed in April."
- Rolland adds that while Intel "expects inventory replenishment in 2H15 around the Win10 release, it was careful to temper expectations for a surged uptick in demand." A Q1 CC remark from AMD CEO Lisa Su suggested Windows 10 (NASDAQ:MSFT), whose Start menu and enterprise-friendly features could help boost industry demand, will launch in late July.
- Also: Morgan Stanley says it's cautious on PC names in the near-term (moreso on chipmakers than other firms) given soft Q2 PC/hard drive inventory builds and weak April sales from ODMs. It sees normal seasonal growth following a rough Q1, and doesn't expect a recovery occurring before Q3.
- Micron (MU -2.1%), Seagate (STX -3.3%), and Western Digital (WDC -1.5%) are lower on a day the Nasdaq is near breakeven. Micron, which is close to its 52-week low, fell on Friday after Nomura cut estimates on PC DRAM pricing fears. Microsoft is down 0.7% after factoring its dividend payment (shares are trading ex-dividend today).
May 5, 2015, 3:08 PM
- Bloomberg reports Microsoft (MSFT -1.2%) is "evaluating a bid" for Salesforce (CRM +4.8%) after Salesforce was approached by another potential suitor. Salesforce is reportedly working with two banks to determine a response.
- Bloomberg cautions Microsoft isn't currently in talks with the cloud CRM software giant, whose market cap stands at $49B. There was plenty of speculation Microsoft was the company that (per Bloomberg) recently approached Salesforce. SAP has denied being interested, and Oracle has suggested it isn't. A source says Microsoft has "long expected it might compete for Salesforce if it was for sale."
- Salesforce has jumped on the report. If Microsoft pursues a bid, activist ValueAct Capital (has a board seat) might raise objections.
- The report comes as Microsoft announces a partnership with cloud ERP/HR/e-commerce software vendor NetSuite (N +3%) to integrate NetSuite's apps with Office 365 apps and Azure services, and to make Azure NetSuite's "preferred cloud infrastructure platform." Microsoft struck an Office 365-focused partnership with Salesforce last year. NetSuite has received a lift from Bloomberg's report.
Microsoft Corp. develops and markets software, services and hardware that deliver new opportunities, greater convenience and enhanced value to people's lives. The company's products include operating systems for computing devices, servers, phones, and other intelligent devices; server... More
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