Why Microsoft Is a Buy

Microsoft (MSFT) announced fourth quarter ended June 30, 2016 total non-GAAP revenue of $22.6 billion, slightly above $22.2 billion of total non-GAAP revenue reported in the sequential third quarter of 2016 and similar growth over $22.2 billion of total non-GAAP revenue declared in fourth quarter of fiscal year 2015.

Microsoft declared fourth quarter of 2016 non-GAAP net income of $5.5 billion or $0.69 per diluted share, up 10 percent sequentially from $5.0 billion or $0.63 per diluted share in third quarter of 2016 and an increase of 8 percent year-over-year from non-GAAP net income $5.1 billion or $0.62 per diluted share in fourth quarter of 2015.

The global software company reported continued sequential and year-over-year expansion in both its top and bottom lines primarily driven by significant customer traction for the company’s innovative cloud computing solutions that are industry-leading and extremely competitive.

Impressive performance    

Microsoft announced solid fourth quarter of 2016 net revenue for the productivity and business processes segment that increased 5 percent and primarily driven by robust Office 365 performance somewhat offset by weaker foreign currency translations.
Why Microsoft Is a Buy
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Gross margin for the segment increased 4% on constant currency basis but, declined generally due to enhanced cloud offerings mix and focused cloud platform investments. However, operational expenditure for the segment increased by 6% due to strategic investments in engineering programs and key cloud sales.

Intelligent Cloud segment total revenue increased 7% with solid expansion across enterprise services, cloud services and server products somewhat offset by weaker foreign currency translations. Gross margin in dollars increased 1% but, percentage gross margin declined year-over-year due to enhanced cloud offerings mix. Further, operating expenditure for the segment increased 22% due to planned acquisitions and investments for driving superior engineering and cloud sales expansion.

Microsoft has illustrated excellent consolidated performance for the productivity and business processes and intelligent cloud segments mainly driven by impressive and expanding customer traction for the company’s attractive set of software solutions that are expected to drive sustainable long-term company growth while delivering industry-leading shareholder returns.

Microsoft is consistently delivering extremely competitive shareholder returns that are very close to the industry indices S&P 500 and NASDAQ Computer.

Growing in the right areas

Microsoft has recently introduced the innovative LinkedIn Learning worldwide online skills development and training platform with international business of identity-wise services and products for a year generating $23.34 billion. Microsoft has bought LinkedIn for about $26.2 billion during June 2015 while LinkedIn had already bought Lynda.com which is a new online training course supplier for nearly $1.5 billion during April 2015. The innovative LinkedIn Learning program is enabled by over 9,000 courses supplied by the online video teaching library of Lynda.com.

The highly-productive training exercises being provided by Microsoft in collaboration with other key service providers is believed to continue to expand the company’s customer base that was once hit badly by the PC market slowdown that hit the market after the expanding usage of Smartphone and handheld devices that increasingly threw away the PC usage from the market and hence, the declining PC sales coupled with the operating system sales that run those PCs.

Going forward, Microsoft is believed to soon takeover Amazon to become the new market leader in the cloud computing space with the former’s Microsoft Azure cloud computing platform steadily expanding and driven by the company’s keen focus on implementing hybrid cloud services. Moreover, the strategic early investments of Microsoft in IoT is estimated to assist the company in notably growing its cloud market share globally and thus, soon taking over AWS that is Amazon’s cloud services platform.


Overall, the investors are advised to “Buy” equity in Microsoft Corporation considering the company’s significant near-term and long-term growth prospects with an industry-leading PEG ratio of 2.32 being supported by a strong financial position with notable total cash of $113.04 billion against smaller total debt position of $53.98 billion only, encouraging the company to make significant future growth investments. The profit margin of 19.69% also seems extremely impressive.
Published on Sep 28, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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