These days, Wall Street is extremely impressed with the way Microsoft (MSFT, Financial) CEO Satya Nadella is turning the company’s focus from putting its software on every machine to having its software being accessible from anywhere.
Analysts have upgraded Microsoft's stock to ‘outperform’ on Monday. They have given this rating based on the company’s brand new business focus, and its efforts to lower costs, despite the forex woes and the Windows XP refresh scenario.
Analysts feel the company’s strategic position has improved with the new cloud and mobile products announcements, the cross platform and software anywhere approach and disciplined cost controls. Let’s dig in deeper to get to the facts of the story.
A year down the line
A year after Nadella replaced Steve Ballmer as CEO, the software and technology company has come to terms with the idea of placing its flagship products like Microsoft Office on mobile devices and not just PCs.
Microsoft has been taking the tech world by storm since early 2014 when they launched Office for Apple’s (AAPL) iPad. This strategy has worked wonders by placing Microsoft Word in the top 15 free apps on the Apple App Store.
Word on the Street
Analysts are showing Microsoft’s cloud business reaching a growth of 40% per year. They expect Windows 10 to be an instant success in the market, thanks to its simplified backend allowing developers to create apps that work across all devices. This will result in user-friendlier front-end apps.
The technology and software giant has recently struck a deal with Lenovo Group Limited (LNVGY, Financial), the world’s leading computer vendor, and a deal with China Mobile Ltd (CHL, Financial) to create a competitive series of mobile phones that should improve Microsoft’s position the China’s market.
Last year, the Windows Phone owned 2.7% of the smartphone market, dropping from 3.3% a year earlier. This drop in market share was witnessed in spite of Microsoft shipping out 1.4 million more units in 2014 than in 2013.
Microsoft just completed 40 years, and the management is busy showing the competitive side to their business models and strategies under Satya Nadella. Nadella himself just completed his first year at Microsoft. Since he took over, Microsoft have been making strong confident buys in the market such as the email app Accompli to boost Outlook’s presence on mobile devices and Minecraft, a popular multi-player game.
It hasn’t been a walk in the park for Microsoft for the last 14 months with shares having gained 6.5% versus S&P’s 500 Index that gained 16% during the same period.
Focusing on the future
The company has hopes for Microsoft’s latest offering – Windows 10. This most recent version has been created from its predecessor’s fundamentals, the Windows 10. Listening to the negative reviews, Microsoft has gotten rid of the ‘Metro’ interface as the launch screen. The Start menu was deemed popular and effective by reviewers and will be returning with bonus features.
The latest Windows 10 is Microsoft’s attempt at returning to the basics in order to provide users with an easy operating system. According to the Windows blog, users can now access their mobile devices via recognition features such as ‘face, iris, or fingerprints’.
Parting word
Based on the convergence of positive investment measures, Microsoft’s stock should get the boost it needs to raise in value. Microsoft’s strengths lie in many areas such as revenue growth, a fairly solid financial position, manageable valuation levels, expanding profit margins, and a sizable return on equity and reasonable debt levels. These strengths should justify the ‘BUY’ rating and investors are waiting for the latest version of Windows 10 to make a debut after which they can take a better investment decision on the stock.
