Should You Buy Microsoft on the Pullback?

Shares of Microsoft (MSFT) have dipped about 10% in the last seven weeks and have provided long-term investors with a great buying opportunity. Microsoft may look overvalued at current levels; however, the stock can continue moving higher.

Why Partnership with NetEase matters

Microsoft is one of the most powerful tech companies around the globe, but the stock was punished for delivering unsatisfactory top-line performance. Despite the fact that Microsoft’s PC revenue plunged in the most recent quarter, the company delivered 14 percent persistent currency growth in enterprise business solutions.

The problems faced by Microsoft are not shocking considering its massive size, because it is ever more difficult to withstand speedy growth from an enormous top-line base.
Microsoft used to be the king in the technology sector, but the company has recently failed to meet expectations and has been unable gain enough market share from its rivals in the smartphone segment throughout the past ten years.

However, Microsoft has taken several steps in the right direction under the leadership of Satya Nadella, as he is renovating the company into a more active and customer focused business. Due to its huge positive cash flow and $23.7 billion in FCF, the company is able to capitalize considerably on the next-generation cloud and enterprise solutions, which helps it to surge its subscriber figures.

Furthermore, Microsoft’s Windows 10 is performing very well. The company detailed that Windows 10 adoption rate is greater compared to previous operating systems. At present, there are approximately 270 million monthly active products powered by Windows 10, and the company’s management anticipates that figure to reach 1 billion devices in the coming two years.

Apart from this, Microsoft recently detailed its partnership with NetEase. The company’s alliance with NetEase could also suggest it becoming Microsoft’s sales agent for Xbox game consoles and Windows 10 gaming tablets. Tencent, the largest publisher of games in China, recently formed an alliance with Intel to manufacture its own gaming consoles.

Therefore, it is a good opportunity for Microsoft to introduce a Windows 10/game console products with the help of NetEase, as it accounts for China’s second largest publisher of games, just after Tencent.

Microsoft has faced selling pressure in the last six months, but the company has multiple long-term tailwinds going forward. As a result, I think investors should make the most of this sell off and buy the stock for the long-term.
Published on Jun 3, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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