Microsoft - Stocks

Instrument description

The two most important components of a computer are hardware and software. The hardware section consists of all the physical parts such as Central Processing Unit (CPU), Hard drive, Keyboard, Mouse, Motherboard, Graphics card, sound card, and many other parts. The software section provides an interface between the hardware and user applications. Both the hardware and software work together to allow seamless operation.

There are thousands of different software that are designed and developed to be used in various business sectors, offices, and households to increase productivity, provide flexibility, increase value, and reduce complications. Microsoft is an American multinational company that is renowned for designing, developing, marketing, and distributing wide range of consumer software, electronics, hardware, and other software products. Microsoft serves a broad range of customers, from common end-users to small and big business companies and even government entities.

Microsoft is regarded as a benchmark when it comes to innovation and advancement in Information Technology (IT). Microsoft is widely known for its operating system ‘Windows Operating System (OS)’ which is used in nearly every desktop and laptop. Other popular software products of Microsoft includes Microsoft Office Suite (that consists of iconic Microsoft Word, Microsoft PowerPoint, and Microsoft Excel), Internet Explorer, and Edge Web browsers.

Microsoft is a big technology firm that also manufactures and delivers premier consumer electronics products such as the successful gaming console ‘Xbox,’ Windows Phones, and Surface smart devices. The word ‘Microsoft’ is a short form of ‘microcomputer software.’ Microsoft is included in the Big Five list that denotes the biggest technology companies of US, along with Amazon, Apple, Google, and Facebook.

Microsoft is headquartered in Redmond, Washington, and has almost 165,000 employees. Microsoft was ranked 21 by Fortune 500 as the largest US company according to revenue. In April 2019, Microsoft became the third company from the US after Apple and Amazon in the exclusive club of trillion-dollar market capitalization.

Microsoft is quite famous because of its founder Bill Gates who is ranked among the richest person in the world for many years. Microsoft has grown tremendously with the rapid advancement of technology, and its stock value increased by more than 230% due to the widespread success of Microsoft Office, and Microsoft Azure Cloud services. Apple overtook Microsoft as the most valuable company in 2010, but Microsoft again reclaimed the position in 2018.

Microsoft operates in almost 210 countries, while nearly 51% of revenue is generated from the US. Microsoft has international research and development center in China and India. Microsoft operations, and other facilities are located in the UK, and Ireland, and data centers are in Singapore, Ireland, and the Netherlands. Microsoft has offices in Australia, Japan, UK, Germany, Canada, and China.

History of Microsoft

Microsoft was formed by two childhood friends Bill Gates, and Paul Allen, on April 4, 1975. At 19 years old, Bill Gates dropped out of Harvard University and tried to develop and sell his programming language called ‘BASIC.’ Both Gates and Allen wrote the language for ‘Altair’ which became the language for the first commercial micro-computer.

Microsoft was formed in Albuquerque but moved in 1979 by Gates and Allen to Seattle. In 1980, another tech giant, IBM, asked Microsoft to write and develop an operating system for their new computing machine. Gates paid $50,000 to Seattle programmer for QDOS (Quick and Dirty Operating System), which was later renamed to MS-DOS (Microsoft Disk Operating System).

In 1981, Microsoft was incorporated, and IBM uses 16-bit OS developed by Microsoft for its first PC (personal computer). In 1982 Microsoft UK was incorporated. In 1983, co-founder Paul Allen fell ill to Hodgkin’s disease and left Microsoft.

In the middle of 1980, Microsoft launched the iconic Window OS. Microsoft was listed on the NASDAQ index and started trading publicly on March 13, 1986, with stock value at $21 per share. In 1990, Microsoft became the first PC Software Company to pass $1 billion in sales. In 1992, Bill Gates was honored with the National Medal of Technology for Technological Achievement.

In 1993, Microsoft launched the Windows NT system to compete with UNIX OS, which was mostly used in mainframes and large servers. In 1996, Microsoft purchased Vermeer Technologies. In 1998, Microsoft faced two anti-trust legal cases for violating the Sherman Act.

In 2000, Microsoft made its largest acquisition by buying Visio Corporation. In 2001, Microsoft released the Windows XP OS version. In September 2014, Microsoft acquired Mojang that developed video games for $2.5 billion. In 2016, Microsoft acquired LinkedIn for $26 billion. In June 2018, Microsoft acquired ‘Playground Games’, which is a UK based Video Games Company. In October 2018, Microsoft bought GitHub, which is a software development firm.

There are only few business companies that have not only remained stable but increased its stock value, and ‘Microsoft’ is one of those companies. From the 1980s to 2000, the technology boom provided growth to the stock value of Microsoft, and there were also few other technology companies that had global reach.

However, the share price of Microsoft declined from 2000 to 2002, the core businesses ‘Microsoft Windows OS and Microsoft Office’ brought consistent revenue and earnings, but Microsoft found it hard to sustain in the smartphone, portable music player, and tablet market.

From 2013 to the present day, the share price and financial performance of Microsoft have climbed as the company diversified its portfolio and made huge development in cloud computing services. The brand value and sales of Microsoft also improved with purposeful partnerships with Samsung and Lenovo and acquisitions of companies such as LinkedIn and GitHub.

Current Business and Investment of Microsoft

Microsoft Corporation is a giant company in the technology sector that designs, develops, licenses, markets, distributes, and supports an extensive range of software-related solutions, services, applications, and products. The segments in which Microsoft operates are Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

• The Productivity and Business Processes unit contributes to one-third of the sales and comprises of development and communication across various platforms and devices. The products and services in this segment include (Office, Dynamics ERP and CRM products, Office 365 (cloud service that includes SharePoint, and Skype for Business), and LinkedIn. The Office software products, along with cloud services, account for almost a quarter of total revenue for Microsoft.
• Intelligent Cloud segment provides almost 30% of the revenue and consists of the successful cloud service (Azure) along with hybrid, private, and public server products that are Windows Server, SQL Server, Visual Studio, and System Center
• More Personal Computing division generates the most revenue of about 35% and includes the selling of products and services to end-users, professional developers, and IT managers. This division also includes Surface tablets and laptops, Xbox gaming console and Xbox video games, and HoloLens virtual reality technology.

Microsoft excels in production and distribution of many essential hardware and software products and services, some of the most popular offerings of Microsoft includes

• Microsoft Windows OS (Operating System)
• Microsoft Office Suite (Includes Word, Excel, PowerPoint, Outlook, Publisher, and Access)
• Dynamics 365 and Office 365 (Skype, SharePoint, Yammer, One Drive, and Planner)
• Microsoft cloud service under ‘Azure’ platform
• Xbox gaming consoles
• Surface laptops and tablets

Microsoft also offers and conducts numerous training and certification courses for inspiring developers. The users are provided proper technical and marketing support and given certificates to authenticate that they took the training program. Microsoft Windows has complete dominance in the operating system with 77% to 87% market share, followed by Apple OS with 13%, and the rest is Linux OS.

Few years ago Microsoft reported that there are more than 1.2 billion users who use some Microsoft Office application, the Microsoft Word and Excel being the most popular and notable. LinkedIn owned by Microsoft is the best social platform for all types of business professionals who can connect and interact. The Microsoft Xbox is the most popular and widely sold gaming console after Sony’s PlayStation.

Microsoft has a wide range of customers that consists of common end-users, professional employees and application developers, small and medium business companies, large business corporations, internet service providers, and public sector institutions. Microsoft products and services are sold through online methods, along with retailers, OEMs (Original Equipment Manufacturers), distributors, and resellers.

Microsoft manages massive cloud-based services that include Azure, Dynamics 365, Office 365 Commercial, and LinkedIn that have contributed more than 70% of revenue in 2018 and 2019. The Azure cloud services rose 64% in 2019 and ranked second to Amazon’s Web services.

Risk and Potential in Microsoft Environment

Microsoft reported revenue of $126 billion in 2019. Microsoft’s net income was $39.240 billion, and total assets were $286.556 billion in 2019. The breakdown of revenue generated from the three segments is

• Productivity and Business processes accounted for $41 billion that included Microsoft Office Subscriptions, LinkedIn revenues, and Cloud service (ERP and CRM application platform)
• Intelligent Solutions contributed $39 billion comprising of sales of private, hybrid, and public servers along with cloud services (Azure)
• More Personal Computing added $46 billion that was derived from the sale of Microsoft Windows Operating System, Xbox, Surface devices, and Bing ads

Microsoft has been in the technology industry for almost 45 years and continues to innovate, revolutionize, and provide quality products to consumers, and businesses all over the world. SWOT analysis is a strategic management tool that every organization uses to examine its business efficiency and take certain steps for future growth and sustainability. The SWOT analysis of Microsoft is given by

• Strengths

Microsoft is a global leader and the biggest software company in the world. Microsoft develops and provides a variety of software products, applications, and solutions that is used by end-users and business enterprises. The company has a strong brand value and a dominant position in the technology sector. Microsoft Windows OS has the largest market share in the OS segment. Microsoft holds a special place in wide business sector with its extensive portfolio, such as Microsoft Office Suite, Skype for Business, and Azure cloud services. Microsoft spends almost $18 billion each year on sales and marketing activities.

• Weaknesses

Microsoft has to face legal issues regarding intellectual property rights and employment issues. Many of Microsoft’s products are susceptible to limitations and hacks. Microsoft is often criticized that the company only provides updates instead of bringing new improvement as compared to Apple, which leads in innovation and sophisticated technology for end users.

• Opportunities

Microsoft is a big tech company with widespread availability of resources and skilled workforce. Microsoft has ample opportunity to grow its cloud services under the ‘Azure’ platform that is already quite popular and successful. Microsoft must do strategic partnerships with other technology firms to grow and diversify its products and services.

• Threats

Microsoft is a big business company, which means the challenges the company faces are also big and in different categories of the technology sector. Microsoft has to constantly face competition from rival tech firms that includes Google, Apple, IBM, SAP, Oracle, Sony, Hewlett Packard (HP), Amazon, and Facebook. Microsoft also faces challenges with counterfeits and pirated versions of its software products.

Stock Analysis of Microsoft

Microsoft is listed and actively trades on the NASDAQ with the ticker symbols ‘MSFT.’ The company is listed under the ‘Technology Services’ Sector, and the industry is ‘Packaged Software.’ Microsoft is also a member of other indices such as the NASDAQ-100, Dow Jones Industrial Average (DJIA), S&P-100 Index, and S&P-500 Index.

The all-time high share price of Microsoft was $216.54 on August 3, 2020, and the average price in the last 52 weeks is $167.64.

Microsoft recorded its all-time share price of $188.70 on February 10, 2020, which was recently broken when share price surged to $216.64 on August 3, 2020. Microsoft performed exceptionally amid the Coronavirus pandemic and beat the revenues and earnings estimates set for the second quarter. The quarterly revenue of Microsoft was posted $36.91 billion, with a 13.7% increase while estimated was $35.68 billion. The earnings per share (EPS) of Microsoft in the second quarter was $1.51 while expected was $1.32.

Due to the Coronavirus outbreak, Microsoft closed all its retail stores due to health concerns. The shares of Microsoft touched low in the last week of March 2020 when Coronavirus cases peaked, but it gained 57% since then. The Covid-19 lockdowns impacted the advertising business of Microsoft, but on the other hand, Xbox sales increased. Microsoft's fourth-quarter ended on July 22, and the company posted the quarterly report that showed revenue at $38.3 billion while expected was $36.50 billion, and earnings were $1.46 per share while expected was $1.34.

The Intelligent Cloud business posted $13.37 billion in revenue with 17% YoY growth. The Productivity and Business processes segment reported $11.75 billion in revenue, with a 6% increase. The More Personal Computing unit contributed $12.91 billion with 14% growth. Overall, Microsoft reported a profit of $11.2 billion at the end of the fourth quarter. The fourth quarter meant the end of the fiscal year, and Microsoft posted yearly revenue at $143 billion with a 14% increase, earnings at $5.76 with 14% growth, and profit $44.3 billion at a 13% increase.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.