What to Expect from MSFT Stock
Unlike other companies from the first technology boom, Microsoft Corporation (NASDAQ:MSFT) is still going strong. Investors showed a lot of confidence in the company by sending MSFT stock up by more than 20% in the last 12 months.
What’s really interesting is that all this happened in the midst of a slowdown. In its most recent quarter, Microsoft’s revenue fell from $26.5 billion to $23.8 billion. Its income was down 14.8%, from $5.9 billion to $5.0 billion. (Source: “Microsoft Corporation Form 10-Q Filing,” Securities & Exchange Commission, January 28, 2016.)
To put it bluntly, people are buying fewer computers. Part of the reason why may be due to the global economic slowdown, but there’s another reason: competition. Consumers have to split their money between smartphones, tablets, laptops, and computers.
Once you throw wearable technology into the mix, it becomes obvious: PC sales are slowing because there are too many other tech products to buy.
This trend hurt the PC industry at large, from microprocessor makers to software titans like Microsoft. But fear not, there is an important metric that suggests MSFT stock will keep rising.
The One Metric to Watch at Microsoft
Remember that even though “Windows” was the king of laptops and desktops, it couldn’t extend that reach to smartphones. The acquisition of Nokia’s phone division turned out to be a giant waste of time and resources.
Thankfully, the company has switched CEOs since then. Then newcomer Satya Nadella completely turned around the firm. He’s the reason MSFT stock went through the roof.
Nadella recognized the problem at hand. People’s disposable income was finite, yet companies gave them four or five expensive devices to buy. The only way to keep growing was by building one device that satisfied multiple needs.
So Microsoft unveiled the “Surface,” a device that is part laptop, part tablet. Other companies have made similar attempts, but they failed for one reason: they didn’t control their own software. They all ran on Windows.
Microsoft has the luxury of owning Windows, so they could pair the software and hardware in a way that others could not. The processing power would feel normal, exceptional even, to a regular laptop user. But it would have the mobility of a tablet.
It was a gamble and one Microsoft couldn’t afford to lose. Markets had the company on a short leash after the Nokia fiasco. Fortunately, consumers loved the Surface.
In the last quarter, Surface revenue jumped to $248 million, up 22% from a year before. That is the only number to watch when Microsoft releases its earnings. (Source: Ibid.)
All the other figures are expected to decrease, from licensing revenue to smartphone sales. But so long as Microsoft keeps selling more Surface devices, MSFT stock should keep rising. Wall Street has marked it as the number to watch and for once, they’re right.