Microsoft (MSFT, Financial) is undertaking a new direction under CEO Satya Nadella, and the market seems to be optimistic about its moves. So far this year, Microsoft shares have gained an impressive 25%, as the company is now focusing on growth areas such as the cloud. In fact, Microsoft has adopted a new strategy known as mobile-first, cloud-first. This clearly explains that the company is focused on both the cloud business, which is one of its core areas of expertise, and the mobile market.
Innovation at the core
Microsoft recently launched a new tool known as the Power BI suite. This allows a person to ask natural language questions, perform rich visualizations, and collaborate around data. Microsoft has received a positive response for the Power BI suite, as average monthly users have increased more than 130%. Delve is another example of its core expertise. It is an Office 365 cloud-based service, which carries out the task of searching relevant information on its own and delivers it to the user.
Similarly, Skype translator is a big leap in the communication channel that breaks the language barrier. According to Microsoft, this product has made communication simpler across all platforms, ranging from friends to businesses.
Its cloud OS is yet another area where the company cites great opportunity, with products such as Hyper-V share, datacenter, Window Server, and System Center gaining good traction. Microsoft has launched the enterprise mobility suite (EMS), which is a comprehensive cloud solution to address IT challenges. EMS combines identity management, device management, and data security into one IT control plane and architecture.
According to management, Microsoft's mobile business is more than just devices. Instead, it aims at simplifying and managing the user experience. In cloud computing, Microsoft has an at-scale public cloud service and provides servers for private and hybrid clouds. It has a wide array of server products such as Azure, StorSimple, InMage and datacenter, which provide its services across Window Server, System Center, and SQL Server. Such a diversified product portfolio will help the company expand its cloud business.
Data center investments worth noting
Moreover, Microsoft's Azure platform is growing at a terrific pace. As a result, the company plans to increase investments in the data center to support its growing services.
Going forward, Microsoft plans to increase its investment in R&D and sales, while keeping a tight control over its operating expenses. Apart from these, it will also invest in its gaming console, apart from focusing more on PC and mobile. Hence, Microsoft is making a number of positive moves that should allow it to perform well going forward.
A defined roadmap
Investment is a crucial part of growth, and Microsoft is following a three-pronged strategy for the same. First, investment should be focused on core productivity experience. The second is to consolidate its overlapping efforts; and lastly, to run the business in an economical manner. With these guiding principles in place, Microsoft has a clear road map as to where the company is heading.
In addition, Microsoft is working to integrate its services on all devices. To achieve this, it has brought MS Office to the iPad, clocking more than 35 million downloads of Word, Excel, PowerPoint, and OneNote. The software giant has also tried to elevate the smartphone experience with the launch of its Cortana personal assistant in Windows Phone 8.1.
These moves display the innovative strength of Microsoft. Innovation lies at the core of every successful product, which again is a sign of a growing company. If a firm stops innovating, it will fall behind the curve. Microsoft knows this and as such, it is investing aggressively in new products and services.
Fundamental analysis
Now, the impressive thing is that despite appreciating strongly so far this year, Microsoft is still cheap. The company has a trailing P/E multiple of 17.5, while its forward P/E is 14.6. It also has a robust cash position of $85 billion, while the debt is relatively low at $23 billion. Along with strong cash flow and a robust dividend, Microsoft looks like an impressive stock to remain invested in. In fact, Microsoft is expected to see an increase of 7.5% in its earnings every year for the next five years, which is better than the rate achieved in the last five years.
Thus, it is a good idea to remain invested in Microsoft as the company's growth isn't over yet.
