Don’t Bet Against MSFT Stock
Microsoft Corporation (NASDAQ:MSFT) stock has performed well in what has been a volatile year for the technology sector. While the U.S. stock market tumbled quite a bit in August and is barely breaking even, MSFT’s stock price surged an impressive 19.0% year-to-date. The tech giant has a wide economic moat and quite a few fast-growing segments that could drive its stock price even higher. Let’s take a look.
Microsoft Corporation: Intelligent Cloud
One crucial advantage Microsoft has over its competitors is the wide existing adoption of its products. This advantage extends to Microsoft’s cloud services. For instance, in the enterprise business, many corporations are already using Microsoft’s “Windows” operating system and “Office 365.” If they ever want to run some tasks in the cloud, Microsoft’s cloud platform looks like a convenient way to go.
Also, Microsoft is pursuing a clever strategy in its cloud business. Corporations have used on-premise solutions for too long and it’s unlikely that they would go straight from on-premise deployments to cloud ones. Therefore, Microsoft is focusing on a hybrid cloud approach using a mix of on-premise, private cloud, and public cloud services called “Intelligent Cloud.”
Its plan is working. In the most recent quarter, revenue from Intelligent Cloud increased eight percent year-over-year to $5.9 billion. On a constant currency basis the increase would have been 14%.
The highlight is Microsoft “Azure,” an enterprise-grade cloud computing platform first launched in February 2010. In the previous quarter, Azure revenue and usage more than doubled year-over-year. Also, Microsoft’s Enterprise Mobility customers more than doubled year-over-year to over 20,000, with its installed base growing almost six-fold year-over-year. (Source: “Earnings Release FY16 Q1,” Microsoft Corporation, October 22, 2015.)
Microsoft Corporation: Surface Pro Sales Surpassing iPad
Another growth driver for the company is its two-in-one “Surface” tablet. The device was first introduced in June 2012, with the newest offering being the “Surface Pro 4.”
The neat thing is that slowly but steadily, market share of the Surface tablet has climbed over the years. According to the latest data of online tablet sales, Microsoft has surpassed Apple Inc. (NASDAQ:AAPL) to become the largest tablet vendor in the U.S. (Source: “Microsoft Beats Apple in Online Tablet Sales,” WinBeta, December 4, 2015.) To be more specific, Microsoft’s online tablet sales surged to a massive 45% in October, while Apple’s “iPad” tablet sales dropped to 17%.
Also note that Microsoft’s devices are, on average, more expensive: the “Surface Pro 3,” Surface Pro 4, and “Surface Book” had an average price of $844.00, while the average price of Apple’s iPads comes in at just $392.00. (To be fair, the Surface Book is really more of a laptop than a tablet, so it should be compared to Apple’s lineup of “Macbooks,” rather than its iPads.)
The Bottom Line on MSFT Stock
Let’s not forget Microsoft’s dominant position in its industry: by November 2015, Microsoft Windows (including all versions that are currently being used) captured nearly 90% of the market for desktop operating systems. (Source: “Desktop Operating System Market Share,” Net Market Share, last accessed December 10, 2015.)
Also, Microsoft’s newest productivity software, Office 365, has also become the most popular choice for enterprises. Office 365 is in use at four out of five Fortune 500 companies. (Source: “Microsoft Earnings Conference Call,” Microsoft Corporation, July 21, 2015.)
Put it all together and you have a company with some solid core businesses and several fast-growing areas. If the company can continue its steady performance, the MSFT stock price could see further upside potential.