Why Microsoft Can Get Better

Microsoft (MSFT) shares have put in a mixed performance on the stock market so far this year despite consistent quarterly performances. In fact, the stock has lost almost 8% of its value in 2015. But, I think that this is a buying opportunity for investors since Microsoft is making strong moves to improve its business.

Focus on growth areas

The software major has focused its advertising business on search and directed its mapping initiatives on improved-level occurrences and advancement services. Microsoft restructured its phone portfolio for operating smoothly in near-term whereas promoting reinvention over long-term.
The company has invested significantly in innovative mobile applications such as, Sunrise, Acompli and Wunderlist.

Microsoft has also solidified its enterprise cloud platform by strategically acquiring BlueStripe, Datazen and Revolution Analytics during this quarter alone. Microsoft is reinventing productivity in business processes that include its initiatives across Dynamics and Office 365. The company is witnessing robust demand for Dynamics and Office 365 products.

It currently has over 15 million Office 365 consumer subscribers, and customers are increasingly signing up at a rate of approximately 1 million per month. Further, the company has exceeded 150 million downloads of Office Mobile on Android and iOS and has launched an innovative version of Office for the Mac.

In the commercial business vertical, the count of Office 365 users is growing continuously, with seats expanding 74% on year-over-year basis. Office 365 has gained significant popularity among the key Fortune 500 enterprises, and over 55% of the installed base is just premium workloads. Microsoft has successfully shifted its customers towards cloud with half of every enterprise agreement renewals were for Office 365 during the quarter.

Product development will drive growth

Microsoft recently launched its new Office 365 Premium SKU for business, E5. This product will allow customers with superior new voice functionality in Skype for Business with PSTN Conferencing and Cloud PBX, core analytics with investigative analytics and Power BI Pro, and superior security features like lockbox and superior threat protection.

Microsoft has also acquired FieldOne, helping to solidify its Dynamics CRM customer service support. The overall paid seats for Dynamics CRM online for this quarter grew 140% year-over-year, and Microsoft has over 8 million paid Dynamics seats in total for ERP and CRM, an increase of 25% on year-over-year basis and thus creating a solid foundation for prospective growth in its Dynamics business.

The technologically advanced new office products for enterprises are expected to drive significant customer traction and deliver enhanced growth for the company. The strategic acquisition of FieldOne is believed to diversify Microsoft’s service offerings and thus allow for notable customer growth.

Meanwhile, in search, Bing is currently powering user experiences on Windows 10 with Cortana, along with search and search advertising throughout the AOL portfolio sites. Bing is estimated to deliver profitability during the forthcoming fiscal year as the advertising revenue expands at 21% on a year-over-year basis.


In my opinion, Microsoft’s weakness is an opportunity to buy more shares considering its valuation. Microsoft has trailing P/E and forward P/E ratios of 29.32 and 14.14, respectively. This is comparable to the industry’s average P/E of 29.10, which means that Microsoft is cheaper than its peers. Hence, Microsoft looks like a smart investment, and the drop in its share price provides an opportunity for long-term investors.
Published on Sep 13, 2015
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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