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- Having initially forecasted a five-year price target of $53 for Microsoft, the current price of $49 signifies investors are anticipating greater growth than previously anticipated.
- While Microsoft's P/E ratio has increased significantly to 19.4x, dividend growth has remained as expected and quarterly earnings per share most recently missed estimates at $2.63.
- Investors should expect significant EPS growth in 2015 to support the current price.
Now At $50, Where Will Microsoft Shares Go From Here?
- Microsoft shares reached the $50 level this week for the first time in nearly 15 years.
- The stock now trades at more than 16 times its fiscal 2016 earnings projections, despite an estimated earnings growth rate of only 6.5%.
- Microsoft continues to generate staggering levels of free cash flow and has an impressive cash position, allowing the firm to continue raising its dividend.
- However, Microsoft shares now appear overvalued by 15%, given the firm's modest growth potential and a forward earnings multiple that is now in line with the broader market.
How Much Will Shareholders Benefit From Microsoft's Culture Change?
- Satya Nadella has successfully transitioned Microsoft to cloud.
- Open source support and cloud rental should compensate for proprietary software losses.
- This is now the best buy for the conservative technology investor.
Microsoft: Doing The Right Thing By Copying Apple
- Just as the Surface tablet was an answer to iPad, Microsoft Band is a response to the Apple Watch.
- Pathetic as it might seem, copying Apple is a strategy that can work for Microsoft.
- Space exists for MSFT in a well-balanced dividend portfolio.
Microsoft's Wearable Looks Like A Happy Meal Toy, However...
- Microsoft's first wearable comes off as a bulky, unpleasant looking "Band.".
- If you ignore looks, you will find a fairly compelling, feature-packed device.
- It's not great, but it's a start to a legitimate "Health" strategy for Microsoft.
- Microsoft's strategy in mobile has shifted away from OS licensing entirely.
- Thankfully, Microsoft has the resources, branding and ecosystem to support a hardware-driven business model.
- Because Microsoft can dictate the direction of its mobile business without carrying much of an intermediary role with OEMs, the mobile business exhibits much more upside potential.
- The wearables and mobile apps market are expected to combine for over $87 billion by 2017.
- Microsoft has made a strong entry with Microsoft Health and Microsoft Band.
- The philosophical shift is, however, the critical element, and positions the company well here.
- Even with Microsoft nearing a fair value, I will be holding my position. The primary reason is Microsoft’s dividend growth potential.
- Microsoft can increase its dividend by 10% annually over the next decade, even with no growth.
- There’s a high probability Microsoft will be able to grow its dividend in excess of 15% over the next decade.
Microsoft: A $99 Gaming-Capable Windows 8.1 Tablet Is Now A Reality
- A $99 Windows 8.1 tablet can be ideal for the millions of gamers addicted to DoTA2, MineCraft and League of Legends.
- Microsoft can compete with cheap Android tablets by pushing $99 Windows 8.1 tablets as companion gadgets for PC gamers.
- Microsoft’s long-term growth in mobile advertising can benefit more from stronger sales of Windows tablets than sales of fitness band products.
Microsoft At $25 Is A Good Buy... But At $46? I Don't Think So
- Microsoft's inattention to detail is painfully obvious, especially to users of its software.
- Microsoft's secret sauce is no longer secret, and no longer working.
- $46 per share is the highest it's been since falling from 58.72 on Dec. 23, 1999 to 55.84 on March 24, 2000, to 21.7 on 12/29/2000.
- Microsoft's value seems to me to be tied to the economy as a whole. I expect it to track the Dow Industrials.
- Q1 2015 EPS reported of $0.54 per share is down 7% Y/Y.
- Q1 revenue reported was $23.2 billion, up 25% Y/Y.
- The lower earnings and margins combined with the higher stock price premium confirm my earlier opinion of the stock.
Microsoft's Net Profit Margin: A Red Flag In An Otherwise Flawless Company
- Microsoft has excellent fundamentals except its net profit margin is mediocre.
- Either a lower P/B ratio or higher free cash flow yield is necessary before Microsoft can be a good investment.
- Hold for now, buy at the next market pullback.
- Microsoft's recent quarter has been stellar with its revenue and profits edging out analyst expectations.
- The company reported an all around growth in both of its segments - commercial and device & consumer.
- Though Microsoft's device & consumer segment is not as strong as its commercial segment, it has shown signs of improvement.
Microsoft Has Upside Due To Unlimited Data On One Drive
- Microsoft heightened the appeal of Office 365 by bundling unlimited cloud storage through One Drive.
- The move makes sense financially, and based on data cost trends, profitability for the subscription-based service will improve.
- I anticipate that the combination of One Drive, Office 365 and Windows 10 will drive an elongated refresh cycle across various devices tied to the Windows ecosystem.
- Shareholders will be rewarded in FY 2015 and 2016 due to increases in subscription revenue and heightened demand for various Microsoft software/hardware products.
Update: Microsoft Fiscal 2015 Q1 Earnings - Cloud Business Remained Impressive
- Microsoft’s fiscal 2015 first quarter earnings and revenue beat analysts’ estimates.
- Cloud business soared, as per our expectation, with commercial cloud revenue growing 128% during the quarter.
- We continue to remain bullish on the company and recommend buying the stock on dips.
- IBM's hardware segment will continue to lose market share to non-branded systems, or white box systems.
- Behind this migration to non-branded systems is Windows Server, which is an OS that continues to gain share in the enterprise space due to cost and performance gains.
- Microsoft bundles various licenses into a bundle, which lowers the effective cost of IT in both dedicated and hybrid configurations.
- However, Microsoft also is dominant on the cloud front, and because Microsoft is well positioned across dedicated, hybrid and cloud configurations Microsoft is a much better play in the enterprise.
- IBM's software, service and hardware revenue is too dependent on UNIX, and because IBM's proprietary OS is shrinking in market share, the market for middleware will likely shrink in response.
Tue, Nov. 25, 6:32 PM
- State-owned Xinhua reports Microsoft's (NASDAQ:MSFT) Chinese subsidiary has agreed to pay RMB840M ($137M) in back taxes and interest, as well as over RMB100M/year in taxes going forward.
- Though Xinhua doesn't specifically name Microsoft, the software giant is the only company fitting the paper's description - a U.S. multinational whose name starts with "M," is one of the world's 500 biggest companies, and which established a Beijing subsidiary in 1995.
- Microsoft is still dealing with a Chinese antitrust probe amid intense post-NSA scrutiny of U.S. tech giants in general. The company has long complained about the huge impact of piracy on its Chinese sales.
Tue, Nov. 25, 2:46 PM
- "Not surprisingly, billionaires reduced their energy allocations (NYSEARCA:XLE) during Q3," says Direxion, unveiling the quarterly rebalance for the iBillionaire Index (which serves as the benchmark for the IBLN ETF). Attention was instead shifted to healthcare (NYSEARCA:XLV) and materials (NYSEARCA:XLB), with companies like Humana (NYSE:HUM) and Monsanto (NYSE:MON).
- Also added to the index: TMO, GM, FB, CBS, GOOG, MAS, APD, DAL, NOV, WHR, THC, ABBV.
- Dropped from the index: AIG, MCK, CTSH, MSI, RIG, CI, APC, GPS, MSFT, CMCSA, NFLX, MHFI, WMB, ICE.
- Outlying sectors: Consumer Discretionary (NYSEARCA:XLY) makes up 23.33% of the iBillionaire Index vs. 11.68% for the S&P 500, and Industrials (NYSEARCA:XLI) and financials (NYSEARCA:XLF) make up just 6.67% each of the index vs. 10.44 and 16.30 of the S&P 500, respectively. Consumer Staples (NYSEARCA:XLP) have zero representation in the index vs. 9.7% in the S&P 500.
- Previously: Direxion launched an ETF with iBillionaire today
Tue, Nov. 25, 1:13 PM
- The Information reports Yahoo (YHOO - unchanged) and search partner Microsoft (MSFT +0.5%) are aggressively trying to sell Apple on replacing Google (GOOG +0.6%) as the default search engine for the Safari browser (pre-installed on all iOS/Mac OS hardware) when its Google deal expires in 2015.
- Apple, which naturally views Google as a major rival, already dropped Google as iOS and Mac OS' Spotlight search provider this year in favor of Bing. Yahoo, meanwhile, is less than a week removed from announcing it has displaced Google as Firefox's default U.S. search provider; Google is still the default provider in Europe.
- The Firefox deal suggests Google is willing to walk away from default search agreements if Yahoo/Microsoft (hungry to grow their scale) significantly undercut its revenue-sharing terms, betting much of its base will keep using Google regardless. Macquarie has estimated Google provides Apple with a 75% cut on Safari-driven iOS search ad revenue.
- On iOS, users could keep relying on Google search in the event of a Yahoo deal by manually selecting Google as their Safari search option (should Yahoo become the default), or by using Google's popular search and Chrome apps. StatCounter estimates Google had a 92.2% October mobile/tablet search share to Yahoo and Bing's combined 6.5%.
Fri, Nov. 21, 12:46 PM
- Believing Satya Nadella has done little to address core problems, Jefferies' John DiFucci (formerly with JPMorgan) has launched coverage on Microsoft (MSFT -1.5%) with an Underperform rating and $40 target, as part of a broader software stock launch. Shares have turned negative after opening higher.
- "We believe the 'new' Microsoft will look very much like the 'old' Microsoft for some time," says DiFucci in his note. He observes the majority of Microsoft's op. profit is still tied to PCs (ed: much of it isn't directly linked to PC sales, but to Office subscriptions/volume licenses), and sees Chromebooks and cheap tablets eating into Windows' computing share.
- Going into today, shares had risen 56% since Steve Ballmer announced his retirement plans in August 2013.
Wed, Nov. 19, 5:20 PM
- Per the terms of a new 5-year deal with Mozilla, Yahoo (NASDAQ:YHOO), whose search engine is powered by Bing (NASDAQ:MSFT), will provide "the default search experience for Firefox in the United States on mobile and desktop." The deal also "provides a framework for exploring future product integrations and distribution opportunities to other markets."
- No word on revenue-sharing terms. Google (NASDAQ:GOOG) has long been Firefox's default search provider. Google's deal was last renewed in 2011, apparently on more favorable terms to Mozilla.
- Though its browser share has fallen in recent years, thanks to both Chrome's gains and a relatively weak mobile position, StatCounter estimates Firefox still has a 12% combined PC/mobile/console browser share globally. Chrome's share is at 41%, and Internet Explorer's at 13%.
- StatCounter puts Yahoo and Bing's combined global search share at just 7.4%. However, comScore puts their combined U.S. PC search share at 29.8%.
- YHOO +0.8% AH.
Thu, Nov. 13, 8:37 AM
- The WSJ reports Microsoft (NASDAQ:MSFT) has reached a deal to buy Israeli cybersecurity/identity-protection software firm Aorato for ~$200M, and plans to announce it today. The paper reported in July a deal was close.
- Aorato's products complement Microsoft's Active Directory enterprise authentication/ID-management software service, since they analyze Active Directory interactions to create user profiles and detect suspicious activity. There could also be synergies with the cloud-based Azure Active Directory service.
- In its latest effort to grow its developer base (previous) and support rival platforms, Microsoft is open-sourcing the server stack for its.NET software framework (underpins many Windows apps), and allowing developers to write server/cloud-based .NET apps for Linux and Mac OS. The move could help .NET better compete against alternatives such as Ruby on Rails and PHP.
- Microsoft has also: 1) Launched a free version of its mainstay Visual Studio 2013 app development suite for non-enterprise users. 2) Previewed Visual Studio 2015, which the company says is "built from the ground up with support for iOS, Android and Windows."
- Microsoft says it will "shortly" reach 10M Xbox One sales, and that sales have tripled since a $50 price cut went into effect on Nov. 2. The latest figures still leaves the One's total sales behind the 13.5M seen by the PS4 as of the end of Q3.
- The pickup in Xbox One sales is a positive for CPU/GPU supplier AMD, which was estimated by IHS last year to receive $110 per unit.
- Update: Microsoft has confirmed the Aorato acquisition. "We are making this acquisition to give customers a new level of protection against threats through better visibility into their identity infrastructure."
Tue, Nov. 11, 9:59 AM
- Microsoft (MSFT -0.3%) has launched the Lumia 535, a low-end Windows Phone that (unlike prior Lumia models) features Microsoft's brand rather than Nokia's. The device sports a 5" 960x540 display, a 1.2GHz., quad-core CPU (Qualcomm Snapdragon), 1GB of RAM, and a 5MP front camera with a wide-angle lens (good for selfies).
- On the other hand, the emerging markets-focused 535 lacks a 4G radio. The phone initially launches in Asia, and will later be brought to the Middle East and Russia. It goes for only ~€110 (~$136) unsubsidized.
- Microsoft sold 9.3M Lumias in calendar Q3, up slightly Y/Y. Strategy Analytics estimates Windows Phone had just a 3.3% Q3 smartphone unit share, falling from 4.1% a year earlier as industry shipments rose 26.7%.
- Microsoft's popular Lync VoIP/unified communications software platform (has been seeing 10%+ growth) has been rebranded as Skype for Business. It adds new client, server, and cloud versions of the platform will launch in 1H15. New features include a revamped UI, video calling support, and native interoperability with 3rd-party videoconferencing systems.
- During a recent talk, exec Julie Larson-Green stated the Cortana virtual assistant would eventually launch on non-Microsoft operating systems. That fits with a number of other moves made during the Satya Nadella era.
Thu, Nov. 6, 10:08 AM
- Less than eight months after launching its Office iPad apps to much praise, Microsoft (MSFT +1.1%) has updated the apps, along with their iPhone counterparts, to allow free users to create and edit docs. Until now, those features were only available to Office 365 subs.
- The software giant has also overhauled its Office iPhone apps - among other things, the UI/codebase resembles that of the iPad apps, and the apps have been better optimized for smaller displays - and unveiled Android tablet apps (will also support free editing) in preview mode.
- An Office 365 subscription will still be needed for some value-added features, such as advanced editing/collaboration tools and full integration with business OneDrive and Dropbox accounts.
- "It’s an extension of the strategy that we’ve got," insists Microsoft exec Michael Atalla. "We’re taking that same user experience we provide online to the native apps of iOS and Android." Apple already provides its iWork productivity suite for free to buyers of new iOS and Mac OS hardware, and Google offers its productivity apps for free to both Android and iOS users.
Tue, Nov. 4, 11:02 AM
- In what's a surprise move given the companies' rivalry, Microsoft (MSFT -0.1%) is partnering with cloud storage/file-syncing giant Dropbox to tightly integrate Office's PC, mobile, and cloud apps with Dropbox's service.
- Among other things, Dropbox users will be able to link their accounts with the Office iPad apps (enabling quick file-viewing, editing, and cloud saving), and the editing of files accessed via Dropbox's Web app will be handled by default through the Office Web Apps, with saved docs than being stored back on Dropbox.
- News of the tie-up comes just a week after Microsoft announced plans to give all Office 365 subs unlimited cloud storage through its OneDrive service (already tightly integrated with Office), thereby deeply undercutting Dropbox and many other rivals.
- Much like many other moves (I, II) Microsoft has made to support rival/alternative platforms since Satya Nadella became CEO, this one seems driven by pragmatism: Dropbox's base include 300M+ users (70% outside the U.S.) and 4M businesses, and its service has been used to store 35B Office docs.
Mon, Nov. 3, 3:38 PM
- 11 days after Amazon (NASDAQ:AMZN) disclosed its main AWS reporting segment saw revenue rise 15% Q/Q and 40% Y/Y in Q3, Synergy Research estimates the company's combined cloud infrastructure (IaaS) and app platform (PaaS) revenue share totaled 27% in Q3, still more than 2x that of any rival.
- Nonetheless, competitors are gaining ground. Synergy thinks Microsoft (MSFT +0.9%), which saw 128% Y/Y Commercial Cloud growth in Q3 (covers both Azure and other services), saw its share rise above 10%. IBM (IBM -0.1%), which reported an 80% Y/Y Q3 increase in "cloud delivered as a service" revenue, is assigned a 7% share. Google, Salesforce, and Rackspace are close behind.
- In a PR, IBM states Synergy declared it to be "the #1 hybrid and private cloud provider for the enterprise." Big Blue has committed $1.2B to building up to 15 new data centers from which to deliver IaaS/PaaS services.
- Hybrid clouds are also pivotal to Microsoft's efforts to gain ground against Amazon. Last month, the company unveiled a new hardware platform (to be sold by Dell) that can handle Azure private cloud services, and link with Microsoft's public cloud services to create a hybrid cloud.
- Synergy thinks industry IaaS/PaaS revenue rose 49% Y/Y on a rolling annualized basis, and that trailing 12-month revenue has topped $14.5B. IDC expects public IT cloud services revenue (IaaS, PaaS, and SaaS) to post a 22.8% CAGR from 2014-2018, growing from $56.6B to over $127B.
Thu, Oct. 30, 2:22 AM
- Microsoft (NASDAQ:MSFT) has launched its first wearable called the "Microsoft Band".
- The wrist-worn device can track pulse rate, steps taken, calories burned and sleep quality.
- The band will be available in the U.S. starting today for $199, and will work on iPhones and Android smartphones, as well as its own Windows Phone.
- The device will connect with a new app called "Microsoft Health", which will include a cloud service for users to store and combine health and fitness data.
- Previously: Microsoft to launch wearable within weeks
Mon, Oct. 27, 1:56 PM
- Looking to speed up the migration from traditional Office licenses to 365 subscriptions, Microsoft (MSFT -0.4%) is now providing unlimited OneDrive cloud storage to 365 subs. The feature is initially being rolled out to Home, Personal, and University subs; business subs will receive it in the coming months.
- Home/Personal 365 plans are priced from $70-$100/year, and business plans from $60-$264/year per user. Save for the cheapest business offering, the plans support both locally-installed and cloud apps.
- Microsoft reported last week its 365 Home/Personal sub base rose by ~1.4M in FQ1 to over 7M, and that its commercial 365 seats rose 96% Y/Y. It was only this spring the company began providing 1TB of free storage to 365 subs (up from a prior 25GB).
- Google charges $120/user/year for Google Apps subscriptions featuring unlimited cloud storage (5 or more users needed). Those paying $50/user/year get 30GB. Dropbox charges $99/year for 1TB of storage. BOX, which has delayed its IPO a couple of times, offers users of its cloud file-sharing/collaboration platform unlimited storage for $180/user/year.
Mon, Oct. 27, 10:29 AM
- Bloomberg reports Microsoft (MSFT -0.7%) has a test version of Windows Server that runs on ARM (ARMH -0.9%) server CPUs. Currently, Windows Server only runs on x86 CPUs, primarily from Intel (INTC -0.7%).
- Windows Server support would provide a major boost to the fledgling ARM server CPU ecosystem; software support has remained a question mark for it even as the likes of Dell, H-P, and Facebook gave their backing. OS support would still need to be followed by app support.
- AMD (AMD +0.4%), Cavium (CAVM -1.3%), AppliedMicro (AMCC -1.8%), and Marvell (MRVL -0.6%) have each unveiled ARM server CPUs, while often promising better power efficiency than Intel's offerings. Supporters have also noted the potential for ARM-based parts to be optimized for specific tasks (security, storage, networking, etc.); Cavium is among the leaders here.
- Intel, for its part, is countering with both low-power Atom server CPUs, and more power-efficient versions of its mainstay Xeon server CPUs (such as the just-launched Grantley). IDC estimates x86 servers (largely running on Windows Server of Linux) accounted for 78% of Q2 server industry revenue.
- Providing ARM support for Windows Server would fit with Satya Nadella's strong interest in broadening the device/platform reach of Microsoft's software and services.
Fri, Oct. 24, 1:46 PM
- Microsoft's (MSFT +2%) FQ1 op. margin of 30.1% was above a 27.6% consensus, notes Credit Suisse's Philip Winslow (Outperform), upping his target by $5 to $55. He chalks up the margin strength to both cost controls and better-than-expected hardware sales.
- Winslow asserts Microsoft can return to double-digit EPS growth, and that "multiple options" still exist for boosting shareholder value. Among them: Divesting underperforming/non-core businesses, increasing capital returns, and accelerating the Office 365 shift in a manner similar to Adobe's Creative Cloud migration. 365 commercial seats were up 96% Y/Y in FQ1.
- Oppenheimer's Shaul Eyal (Outperform) likes the margin strength, as well as the 128% growth in total commercial cloud revenue. "It appears CEO Nadella is infusing new DNA."
- Separately, Microsoft officially announced today it will now use its own brand for Lumia hardware rather than Nokia's. The Nokia brand will still be used for some feature phones, such as the Nokia 130.
- Yesterday's earnings coverage
Thu, Oct. 23, 7:04 PM
- Microsoft (NASDAQ:MSFT) guides on its FQ1 CC for FQ2 revenue of $25.4B-$26.5B, below a $27.9B consensus. But the company has shown quite the knack for guiding conservatively in recent quarters; FQ1 revenue ($23.2B) was soundly above the guidance provided in July ($21.2B-$22.3B).
- The company notes Devices & Consumer Licensing revenue (-9% Y/Y in FQ1) is being affected by the loss of revenue from Nokia; Nokia revenue totaled $650M in FQ2 last year.
- Total Windows OEM revenue fell 2% Y/Y in FQ1, as price cuts offset unit growth. "Windows Phone revenue" (driven by Android royalties) fell 46%, something attributed in part to a "higher mix of low-royalty devices;" Microsoft is in the midst of a royalty dispute with high-end Android leader Samsung.
- 9.3M Lumia phones were sold (up slightly Y/Y), aided by strong European and low-end demand. With feature phone sales falling quickly, phone hardware revenue is expected to drop to $2B-$2.2B in FQ2 from FQ1's better-than-expected $2.6B.
- Search ad revenue rose 23% Y/Y; Microsoft pegs Bing's U.S. search share at 19.4% (+140 bps Y/Y).
- Full-year opex guidance is unchanged at $34.2B-$34.6B. Due to the Nokia deal, opex was up 13% Y/Y in FQ1 to $7.9B. That growth rate should drop in the coming quarters, and possibly turn negative.
- MSFT +2.6% AH. FQ1 results, details, guidance (.ppt), CC slides (.ppt)
Thu, Oct. 23, 4:30 PM
- Microsoft's (NASDAQ:MSFT) Commercial revenue rose 10% Y/Y in FQ1 to $12.28B, nearly even with FQ4's 11% growth. Server products/services +13%; Office commercial products +5%; commercial cloud (Azure, Office 365, Dynamics cloud apps) +128%.
- Windows Server, SQL Server, and System Center each grew by double digits, and Lync, SharePoint, and Exchange collectively saw double-digit growth. Windows volume licensing +10%.
- Devices & Consumer revenue (boosted by the Nokia deal) +47% to $10.96B. Phone hardware revenue totaled $2.6B, down from $3.9B a year ago but above guidance of $1.9B-$2.3B. 2.4M Xboxes were sold (+102% thanks to the Xbox One launch), and Office Home/Personal subs rose by ~1.4M Q/Q to 7M+. Surface revenue totaled $908M.
- One soft spot: Dollar-wise, a 9% drop in D&C Licensing revenue to $4.09B more than offset a 16% increase in D&C Other revenue (inc. Web and cloud services) to $1.81B. OEM non-Pro Windows revenue fell 1%, though Windows consumer unit growth was positive.
- Commercial Licensing made up 61% of Microsoft's gross profit, and Commercial Other (inc. cloud services) 5%. D&C Licensing accounted for 26%, and D&C Other just 2%.
- $2.9B was spent on buybacks. The unearned revenue balance rose 11% Y/Y to $22.5B.
- MSFT +2.8% AH. FQ1 results, PR.
MSFT vs. ETF Alternatives
Microsoft Corp is engaged in designing, manufacturing, selling devices, and online advertising to a global customer audience. Its products include operating systems for computing devices, servers, phones, and other intelligent devices.
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