The worldwide software company develops the Windows PC operating system, the Office suite of productivity software, and enterprise server products such as Windows Server and SQL Server. The former accounts for 60% of the firm's revenues, while the latter represents 24%.
Other businesses includes Xbox 360 video game console, Bing Internet search, business software and software for mobile devices.
Now Microsoft is working hard to launch the Windows 8 OS inspired on Windows 7 and its successful performance. This new system is expected to be a PC, tablet and smart-phone-friendly platform. It is thought that finally mobile devices empowered by Windows 8 OS will be able to rival Apple's iPad and the less accomplished Google Android-powered mobile devices.
Having the Xbox gaming console today is being in the leading edge. Many expect that it will be the top spot for the years to come. It looks to be the first all-in-one set top console. It currently supports an external HD DVD player, streams Netflix in high definition, and allows access to Pandora, Zune and Last FM, among other applications.
Everything is pretty good for MSFT.
In terms of positives and risks, Microsoft has more pluses than minuses. There are specific reasons that turn Microsoft in a company worth investing in. First, the Azure platform is expected to develop into a larger business; second, MSFT and Nokia's partnership will trigger large market share gains for the Windows Phone platform and will bring about a $1 billion or more annual revenue stream and third, the online services division will become a profit contributor with higher market share gains.
Furthermore, Microsoft's has recently acquired Skype for $8.5 billion. This video conferencing transaction may prove to be a wise use of resources, as it should help the company make some serious inroads into and grab some market share from its sector peers in the tele/video communications realm.
The company has also entered into an agreement with Facebook by means of which it allows friends and family to connect for video chatting.
What are the risks MSFT may face? The major one is the transition to cloud computing. Although it will certainly be a success, it is hard to put in place.
Steve Ballmer, Microsoft's CEO, commented on that: “We're seeing businesses move to the cloud at an accelerating rate. They're taking existing applications and making them cloud ready. They're developing new applications and inventing new ways of doing business. And our cloud strategy makes it possible for customers to do all of these things at the pace in which they're comfortable having things in the Internet cloud in addition to their own private servers and data centers.”
Another risk is Apple's and Google's growing share in the market regarding technology products.
In terms of last quarter's results, Microsoft has shown a solid balance sheet with $50 billion in cash and cash equivalents and nearly $12 billion in debt.
Sales of Office and server products have caused a 7% year over year increase in quarter revenues. Strong sales of Windows Server, System Center and SQL Server drove server and tools division revenue 10% higher than the year-ago period.
In terms of valuation, the fair value estimate is $32 per share, which involves a P/E of 9.7 times. With the transitions that MSFT is going through, growing revenue and declining operating margins will combine to deliver flat to low growth in total operating profits.
While it is expected that the Windows PC operating system business revenues will decline, server and tools revenue, particularly Azure, will offset the loss. The Microsoft business division is also forecast to trigger revenue increases.
Although cloud services will encourage growth, the business will generate lower operating margins vis-à -vis the firm's historical Windows and Office cash cows due to hardware and management costs related to delivering hosted services.
In terms of management, Microsoft's CEO is Steve Ballmer and its chairman is Bill Gates. Management strategy is clearly aligned with shareholders. Steve Ballmer said: “Last year we returned almost $17 billion to shareholders through stock buybacks and dividends, and we recently announced a dividend increase of 25%.”
Furthermore, shareholders can call meetings and cast nonbinding advisory cotes on compensation practices. Over the past decade, management has made great efforts to protect the Windows and Office cash cows.
Other businesses includes Xbox 360 video game console, Bing Internet search, business software and software for mobile devices.
Now Microsoft is working hard to launch the Windows 8 OS inspired on Windows 7 and its successful performance. This new system is expected to be a PC, tablet and smart-phone-friendly platform. It is thought that finally mobile devices empowered by Windows 8 OS will be able to rival Apple's iPad and the less accomplished Google Android-powered mobile devices.
Having the Xbox gaming console today is being in the leading edge. Many expect that it will be the top spot for the years to come. It looks to be the first all-in-one set top console. It currently supports an external HD DVD player, streams Netflix in high definition, and allows access to Pandora, Zune and Last FM, among other applications.
Everything is pretty good for MSFT.
In terms of positives and risks, Microsoft has more pluses than minuses. There are specific reasons that turn Microsoft in a company worth investing in. First, the Azure platform is expected to develop into a larger business; second, MSFT and Nokia's partnership will trigger large market share gains for the Windows Phone platform and will bring about a $1 billion or more annual revenue stream and third, the online services division will become a profit contributor with higher market share gains.
Furthermore, Microsoft's has recently acquired Skype for $8.5 billion. This video conferencing transaction may prove to be a wise use of resources, as it should help the company make some serious inroads into and grab some market share from its sector peers in the tele/video communications realm.
The company has also entered into an agreement with Facebook by means of which it allows friends and family to connect for video chatting.
What are the risks MSFT may face? The major one is the transition to cloud computing. Although it will certainly be a success, it is hard to put in place.
Steve Ballmer, Microsoft's CEO, commented on that: “We're seeing businesses move to the cloud at an accelerating rate. They're taking existing applications and making them cloud ready. They're developing new applications and inventing new ways of doing business. And our cloud strategy makes it possible for customers to do all of these things at the pace in which they're comfortable having things in the Internet cloud in addition to their own private servers and data centers.”
Another risk is Apple's and Google's growing share in the market regarding technology products.
In terms of last quarter's results, Microsoft has shown a solid balance sheet with $50 billion in cash and cash equivalents and nearly $12 billion in debt.
Sales of Office and server products have caused a 7% year over year increase in quarter revenues. Strong sales of Windows Server, System Center and SQL Server drove server and tools division revenue 10% higher than the year-ago period.
In terms of valuation, the fair value estimate is $32 per share, which involves a P/E of 9.7 times. With the transitions that MSFT is going through, growing revenue and declining operating margins will combine to deliver flat to low growth in total operating profits.
While it is expected that the Windows PC operating system business revenues will decline, server and tools revenue, particularly Azure, will offset the loss. The Microsoft business division is also forecast to trigger revenue increases.
Although cloud services will encourage growth, the business will generate lower operating margins vis-à -vis the firm's historical Windows and Office cash cows due to hardware and management costs related to delivering hosted services.
In terms of management, Microsoft's CEO is Steve Ballmer and its chairman is Bill Gates. Management strategy is clearly aligned with shareholders. Steve Ballmer said: “Last year we returned almost $17 billion to shareholders through stock buybacks and dividends, and we recently announced a dividend increase of 25%.”
Furthermore, shareholders can call meetings and cast nonbinding advisory cotes on compensation practices. Over the past decade, management has made great efforts to protect the Windows and Office cash cows.
