Microsoft Stock: Still a Great Buy in 2018

Posted On January 4, 2018 2:52 pm

Microsoft stock remains the hottest buying opportunity in 2018. The tech darling of the 90s is continuously adapting to the change that is taking place in the industry. Last month, investment firm Evercore ISI’s Rich Ross recommended investors to buy Microsoft. Ross thinks that Microsoft is a clear outperformer when compared to its competitors. Microsoft’s traditional apps and productivity sector is also thriving. In the fiscal first quarter of 2018, Productivity and Business revenue increased by over $1.8 billion, intelligent cloud grew $825 million, Commercial Office 365 platform revenue went up $500 million. Almost every business segment of Microsoft is growing.

Microsoft is becoming a market leader in the Infrastructure-as-a-Service Cloud industry. Microsoft’s Azure revenue growth is much bigger than Amazon, doubling every year. In the fiscal first quarter, Microsoft Azure revenues increased by a whopping 90% year-over-year. Microsoft’s commercial Cloud revenue has increased by over 56%. Microsoft is trying to compete with giants like Amazon and Google by lowering Azure prices. Microsoft is also planning to expand its data centers to 44 from 36.

Microsoft also has a huge potential in the gaming Cloud industry. Microsoft Xbox Live’s network has over 55 million active users.  In the first quarter, Microsoft Xbox Software & Services revenues jumped 20% year-over-year. Microsoft CEO Satya Nadella has big plans to turn the massive user base of Xbox Live into paid subscribers.

Microsoft has very strong fundamentals. The company is a cash generating machine. Over the last 12 months, Microsoft generated more than $32.3 billion of free cash flow and $22.1 billion of net income.

Investors also think that Microsoft stock will start reaping major benefits of the company’s LinkedIn acquisition. In the four quarters of 2017, LinkedIn revenue came in at over $4 billion. People around the world are turning to LinkedIn for job search and employment initiatives. This means that Microsoft will continue to benefit from its LinkedIn acquisition, which came in at a cost of over $26 billion last year.

Microsoft’s margins are also improving as a result of subscription-based revenue growth and Cloud expansion. Microsoft’s overall operating margin in the first quarter came in at 31.41% , which is 586 basis points higher year over year. SG&A expense as a percentage of total revenue came in at 20.29%, around 420 basis points lower than a quarter ago.

 Related: Apple is Back on Top of the Smartwatch Business, and Here’s Why

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