Microsoft Stock: 3 Reasons to Be Bullish on Microsoft Corporation

Microsoft StockIn a turbulent market, buying stocks can be met with much trepidation. But for the smart investor, a market correction such as the one we are experiencing now can be an excellent buying opportunity. With Microsoft Corporation (NASDAQ:MSFT) stock down about 10% for the year, investors might want to consider taking a second look at Microsoft stock, as it has some potential catalysts for investors.

First, Microsoft is financially healthy.

The company has a very strong balance sheet that will stand any economic downturn. Its current total assets are almost double its total liabilities and during the last quarter, MSFT stock recorded revenue of $23.8 billion on non-GAAP earnings of $6.3 billion. Microsoft also boasts an “AAA” credit rating.

Microsoft’s core businesses are still strong. “Windows 10” is now on more than 200 million active devices. That makes it the fastest adoption rate the platform has experienced.

The strength of Windows 10 is vital, as it has many potential add-on monetization opportunities. In the latest quarter, for example, Microsoft has partnered with Netflix, Inc. (NASDAQ:NFLX), Pandora Media, Inc. (NYSE:P) and Uber. These partnerships contribute to a stellar balance sheet.

Microsoft has moved in tandem with the S&P 500 during the current stock market correction, which is down about 10% for the year—a good sign that investors have confidence in Microsoft, given the current negative sentiment in the market.

Next, investors can count on the leadership of CEO Satya Nadella.

Since Nadella took the helm of Microsoft two years ago, he has rapidly taken the company’s core technologies and shifted them to the cloud. Microsoft’s cloud-based “Office 365” has a customer base of 20.6 million users, up from 124% over the previous year. (Source: “How Microsoft Corporation’s Cloud Business Is Doing In 4 Numbers,” The Motley Fool, February 3, 2016.)

That growth rate suggests that Microsoft’s plan to transition Office to an evergreen subscription model is starting to reap rewards. It also suggests that fears that Alphabet Inc’s (NASDAQ:GOOG) free productivity apps would take away Microsoft customers were exaggerated. Alphabet’s “Google Drive for Work” has about one million paying customers as of last October—hardly a threat to Microsoft. (Source: Ibid.)

Nadella also opened up Microsoft’s cloud services to other devices outside of the Windows phone, such as Apple Inc.’s (NASDAQ:AAPL) “iPhone” or phones powered by Alphabet’s “Android” operating system (OS), increasing its market base.

Lastly, “Azure,” Microsoft’s cloud infrastructure platform, is booming.

Microsoft recently reported that in its latest quarter, Azure revenue rose 140% annually over last year.  Forrester Research estimated that Azure had an annual run rate of $1.6 billion, which would put it second behind Amazon.com, Inc.’s (NASDAQ:  AMZN) “Amazon Web Services” (AWS). Amazon’s AWS reported an annual revenue run rate of about $10.0 billion last quarter.

Yes, Azure is well behind AWS, but Azure is growing almost twice as fast as AWS’s 78% growth rate. (Source: “This one chart gives you an idea of how crazy Amazon’s cloud growth really is,” Business Insider, December 15, 2015.)

BMO Capital Markets analyst Keith Bachman recently suggested that Azure has the potential to grow 55% annually for the next three years, accounting for five percent of total revenue by 2018, which is an increase from two percent for the last quarter. (Source:  “BMO Likes Microsoft, Skyworks And Nokia Amid Tech Earnings Season,” Benzinga, January 26, 2016.)

Altogether, Microsoft’s cloud-based services—Office 365, Azure, “CRM Online,” and others—reached an annualized revenue rate of $9.4 billon. Microsoft management expects that number to double to $20.0 billion by 2018. (Source: “Microsoft Corporation Surges as Demand for Cloud Services Continues to Rise,” The Motley Fool, January 28, 2016.)

The Bottom Line on Microsoft Stock

MSFT stock is in a position to have a great 2016 and beyond, even if the current market turmoil persists. At its current price, Microsoft stock is not expensive, sporting a forward price-to-earnings ratio of 16. With much growth left, investors might want to take a look at MSFT stock.

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