Is this a dream, or is Microsoft a 'buy'?
Welcome back, old rival! Hats off to you for becoming number one in numerous 'Stocks to Buy' lists, and even tackling Apple for it! Being back in the battle to become the world's most expensive entity, for a business so completely ignored by investors in the recent years, is quite a victory! But how did they achieve it?
How about Microsoft?
With the tech sell-off, FAANG (Facebook, Amazon, Apple, Netflix, Google) stocks are having a tough time. And Apple leads the way. After losing a quarter of its value since the 3rd of October 2018, the once-dominant tech company now appears to be grasping at straws.
Between poor sales of new iPhones and Trump's tariff threats on the company, Apple has fallen behind, and Microsoft is here to take the cake and eat it too!
Microsoft's journey has been an uneasy one.
Although it revolutionized the PC industry, the magnet company failed to respond to the mobile computing era in time, and paid for it. By 2010, as Apple's revenues grew higher and stocks surged, Microsoft presented a flat line of growth.
In 2013 Microsoft desperately invested over 7 billion dollars to buy Nokia's mobile business (which was, of course, in sharp decline by that point). Counting on giving a strong boost to their Windows platform was indeed a good move. Just way too late.
By that point Apple's IOS and Google's Android already dominated 94% of the phone market. There was simply no space for Microsoft to start its advances, which were anyway falling far too short of the two giants' constantly developing technology.
By the following year, Microsoft's management changed. Satya Nadella was named CEO in 2014, while the giant company was going through a very challenging time. The dominance of the Windows platform was compromised, and even the release of the latest Windows 8 brought little to no hype.
Nadella realized it was time to drastically change direction.
If Windows on smartphones was 'a ship that had sailed' - a refocus on cloud computing was the way to the future. With investments in Azure Cloud, Artificial Intelligence and Office 365 subscriptions, Microsoft tackled a niche other tech companies were struggling with and hit jackpot.
This move opened the way for Microsoft to reduce dependence on their servers and data centers, and drastically cut costs. The subscription idea too, proved a success in the business world.
To be fair, Microsoft did have a lot of leverage behind them.
Their long-term standing ensured that even in their darkest hour, they sat on an average of $60 billion dollars net cash. This brought an opportunity to re-invest and gave the giant tech company the ability to "experiment" with direction, without the risk of drowning if an option falls through.
This competence was well exercised when after the failure of Windows 8, a Windows 10 release came underway. Needless to say, users met the news with 'make the pain stop' remarks. The new version had, however, surpassed expectation and proved reliable for both - personal and business use. With now over three years to show for it.
All in all, there's no denying that Nadella - unlike his predecessor - knew exactly where to put Microsoft's money. Apart from cloud computing and the revival of Windows 10, he also focused on keeping Xbox afloat, and ensured Microsoft wouldn't entirely lose its gaming industry potential in a market dominated by Sony's Playstation brand.
Having acquired Mojang - the company behind Minecraft - for $2.5 billion, he ensured Microsoft had increasingly successful sales from gaming software. The 2016 acquisition of Linkedin - on the other hand - brought one of the social network's co-founders, Reid Hoffman, on board.
Furthermore, Microsoft's years of experience paid off. While Facebook and Google barely make it out of privacy concern cases, Microsoft stands strong. Although having struggled with similar issues in the past, its current products are deemed entirely secure.
But what do other companies have that Microsoft doesn't?
Most importantly: the buzz and excitement surrounding their products! To illustrate, people wait days in line for a new iPhone releases, back Apple whatever the case, and are overall an integrated part of the brand's network. Amazon, Netflix and Google are no less loved.
But can we really say people feel the same way about Microsoft? Sure, its products are convenient for business use, but no one is really breaking down doors for the latest Office update. On the other hand, do they have to? So far, numbers speak for themselves, and what we could draw from it is: Microsoft could potentially be a long-term 'buy'!
*Risk Warning: CFDs are complex instruments that come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts, lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
This article was submitted by Stratton Markets.
