MSFT - Microsoft

[Palantir]

Microsoft Cloud Growth Drives Strong Fourth-Quarter Results

http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY14/Q4/default.aspx

 

Nokia, as expected, is bad, but interestingly enough, Gaming and Computing Hardware is now making a (gross) profit, I like the increases in Bing's search revenue as well.

[Liberty]

Nokia, as expected, is bad,

 

I thought this chart was interesting:

 

 

 

Mostly a feature-phone company.

[Guest wellmont]

look for msft to get rid of nokia about as fast as google got rid of motorola. nokia was the last straw. this is the deal that got the last CEO removed.

[fareastwarriors]

HTC One With Windows Phone: Another Great Phone You Won't Buy

 

The Best-Designed Android Phone Is Being Released With Windows Phone 8.1

 

 

http://online.wsj.com/articles/htc-one-with-windows-phone-another-great-phone-you-wont-buy-1408459355?mod=WSJ_hppMIDDLENexttoWhatsNewsSecond#livefyre-comment

[rpadebet]

http://www.bloomberg.com/video/steve-ballmer-clippers-a-really-well-valued-nba-team-Knt5B8R1T6qQy74QBxJplQ.html

 

Is Steve Ballmer suggesting market is overvalued? Even to him!!? I am really getting scared now...

[Guest wellmont]

he is suggesting that some tech valuations are out of whack. that's fairly obvious. but he is hanging on to his $msft stock as he leaves board of directors. besides, ballmer has never been really a very good go-to guy for this type of stuff (value of assets).

[Palantir]

"Hi pot, I'm kettle...."

[fareastwarriors]

Microsoft Near Deal to Buy Minecraft Maker Mojang

 

Deal May Come This Week, Value Swedish Company at More Than $2 Billion

 

 

http://online.wsj.com/articles/microsoft-near-deal-to-buy-minecraft-1410300213?mod=WSJ_hp_LEFTTopStories

[Palantir]

Nice, my boy Satya has been taking lessons from my other boy Steve. $2B here, and $2B there... ;D

[fareastwarriors]

Microsoft Is Giving Away Its Office 365 Mobile Apps

 

 

http://blogs.wsj.com/digits/2014/11/06/microsoft-gives-away-office-365-mobile-apps-in-a-bid-for-more-users/?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird

[texual]

I like the share price climbing since Ballmer left. Nadella has the right vibe for the company. The recent moves are shrewd - and I am just glad MSFT is approaching 50/sh.

 

I should have added on the recent drop to 43 but alas!

[rukawa]

I feel like selling my stock. Can anyone clarify the long case here? My position on Microsoft has always been pretty straightforward:

 

1) Essentially an unbreakable moat around their business productivity software

2) Massive cash flows

3) Not too expensive.

 

I always hoped that shareholders would get more access to 2) in the form of shareholder buybacks. Instead all I am seeing is acquisitions which Microsoft has never been good at. Is the long thesis here that Nadella is better than Balmer because he has changed the strategy to enterprise instead of devices. If so I agree but it seems like all the cash goes into the big black hole of acquisitions.

[PatientCheetah]

MSFT is still very cheap relative to other enterprise software company. Nadella is making all the right moves - focus where Microsoft is strong at and discard legacy areas where it has lost competitiveness. I think there are still more stories to be unfold. With the right leadership and increased confidence from the investor base, who knows how far Microsoft's multiple range can expand.

[Guest wellmont]

well it seems to me, with respect, your analysis to sell could use more nuance. the acquisitions made recently were made by a new CEO and approved by a new, more ROI, focused BOD that includes a representative from ValueAct. You can't compare latest acquisitions to acquisitions made by the last CEO under a different BOD. And why do you think they won't return cash to shareholders? because they haven't done it since the CEO change? Read what Valueact said about MSFT. they said they have too much cash on the balance sheet. but we all make our own decisions and selling may indeed be the correct one.

[dwy000]

Isn't the cast majority of that cash trapped overseas?  It will place a limit on the amount that can be used for buybacks. 

[rukawa]

well it seems to me, with respect, your analysis to sell could use more nuance. the acquisitions made recently were made by a new CEO and approved by a new, more ROI, focused BOD that includes a representative from ValueAct. You can't compare latest acquisitions to acquisitions made by the last CEO under a different BOD. And why do you think they won't return cash to shareholders? because they haven't done it since the CEO change? Read what Valueact said about MSFT. they said they have too much cash on the balance sheet. but we all make our own decisions and selling may indeed be the correct one.

 

I hate tech acquisitions. There isn't a lot of nuance because most tech acquisitions suck. The best tech acquisitions Microsoft ever made are basically of the buy instead of build type. They bought a technology they needed and developed into a product. The reason these acquisitions work well is that the technology is almost always bought very cheaply because it isn't a product yet and therefore doesn't command a large valuation.

 

Lets go through Microsofts most successful products:

1) MS-DOS: Microsoft bought 86-DOS 1.10 for $75,000

2) Windows: developed in house

3) Excel: developed in house

4) .Net tech: developed in house

5) Word: developed in house

6) Powerpoint: bought for 29 million in 1987

7) Sharepoint: developed in house

8. SQL Server/Access: Microsoft bought the original code base form Sybase probably relatively cheaply

9) Jet Database: in house developed

10) Xbox : in house

11) Visio: acquired for 1.3 billion by buying Visio corporation

12) Microsoft Dynamics: acquired for 1.33 billion by buying Navision corporation

13)  Microsoft Lync Server: not sure where this came from but I would be in was mostly in house

14) Microsoft Azure: ?? probably in house

15) Microsoft Server technologies (Exchange Server, Sharepoint Server etc): in house

 

You will notice a theme: in house. You will also notice that the two large acquisitions, Visio for 1.3 billion and Dynamics for 1.33 billion do not account for most of the cashflows or the business value of Microsoft. Visio is a marginal part of office. Dynamics is much faster growing and probably makes sense long term but even Dynamics accounts for <2 billion in revenue.

 

Bing, hotmail are garbage. Go take a look at Microsoft Acquisitions here:

http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Microsoft

 

The ones that are most important are the ones you don't even know about where Microsoft bought some company cheaply because it had a technology they wanted. Or better still Microsoft bought a person like for instance Anders Hejlsberg (C#) or Charles Simonyi (developer of Word and architect of Office).

 

Another example of a good acquisition is Google's acquisition of Android: cost 50 milllion.

 

A good tech acquisition is one that already fits into a pre-existing plan to develop a technology, is cheap and where the acquirer adds massive value. Google added billions of value to Android.

 

Now Nadella's acquisitions:

1) Minecraft - 2.5 billion - already a very successful product...how does an enterprise focussed company add value? Microsoft's other game acquisitions suck

http://www.polygon.com/2014/9/15/6153109/microsoft-minecraft-acquisitions

2) Nadella supported Balmer's Nokia acquisition - I think I just threw up in my mouth

 

As for the reasons I don't think they will return cash to shareholders...its simple, they already announced their 40 billion (yawn) buyback program. Which is the same buyback program they have done twice already. I want a 100 billion buyback program which should have been done when the share price was cheaper. Preferably funded with debt and over a much shorter time frame. Nadella hasn't provided any details on what he will do for shareholders because I don't think he really cares that much. Nadella is a tech visionary and while I like that I can't reliably predict that will lead to good results. Maybe the activists will succeed in influencing him and maybe they won't. I don't know. Right now all I know is that I am betting on Nadella's abilities and that Nadella is a nice guy. That's about it.

[Palantir]

I think the long case is very clear. Apart from the fact that it is still numerically cheap, there is substantial growth ahead in its cloud businesses. Furthermore, cloud companies trade at higher multiples, so I'm expecting rising multiples as growth investors enter and value investors exit. This is just the beginning for a multiyear growth run in Azure and other businesses. So if you, as a value investor are exiting, I am happy to know that.

 

 

 

I'll point out that I was the one who was touting Nadella as a good future CEO while others were saying he'd be "more of the same".  8)

[cubsfan]

I believe the other lever you are going to see are substantial cost cuts from layoffs.

They've already started in October. A friend of mine, a 7 year MSFT employee was laid off.

He said there is plenty more coming. You'll see plenty of profitability from MSFT just getting lean.

They've always been a bloated mess.

[LC]

A friend of mine is in Africa recruiting for MS. There are talented engineers everywhere and they work cheaper than US counterparts.

[rukawa]

Furthermore, cloud companies trade at higher multiples, so I'm expecting rising multiples as growth investors enter and value investors exit.

 

The cloud growth story has been going on for a long time now and we are already at the stage where growth is petering off for large cloud companies like Amazon.

http://venturebeat.com/2014/01/30/amazon-cloud-revenue-growth-appears-to-have-slowed/

 

Plus MSFT, is not a pure play cloud company so cloud investors won't be thinking about them when they think "cloud". The growth in cloud revenues is essentially hidden due to the size of the company so growth investors won't touch it.

 

Plus I don't get why Microsoft is especially advantaged here. It is competing in the space with Google, Amazon, IBM, HP etc. It appears that Amazon, IBM and Microsoft are all making about 4 billion. And there are many smaller companies. I expect the competition to be ferocious.

 

Apart from the fact that it is still numerically cheap

I would at best call it slightly cheap and verging on a fair price. Right now I think of it as "enchanced cash".

 

[Palantir]

I think this is just the start of growth in the cloud, I expect there to be many years of revenue growth, and with MSFT, their legacy software businesses like Office can be ported over to the new model such as Office 365, and as it increases, it will be a bigger and bigger part of the pie. While AMZN is the leader I personally do not see Google and IBM to be strong competitors to MSFT in this space, and MSFT has advantages where it comes to their large installed base of users, which Google doesn't have.

[fareastwarriors]

Microsoft’s Azure is Starting to Close the Gap with Amazon’s Cloud Service

 

http://www.businessweek.com/articles/2014-12-11/microsofts-azure-is-closing-the-gap-with-amazons-cloud-service#r=hpt-ls

[peter1234]

Microsoft’s Azure is Starting to Close the Gap with Amazon’s Cloud Service

 

http://www.businessweek.com/articles/2014-12-11/microsofts-azure-is-closing-the-gap-with-amazons-cloud-service#r=hpt-ls

 

Does this mean Microsofts margins will be moving in Amazons direction?

 

[rukawa]

I think this is just the start of growth in the cloud, I expect there to be many years of revenue growth, and with MSFT, their legacy software businesses like Office can be ported over to the new model such as Office 365, and as it increases, it will be a bigger and bigger part of the pie. While AMZN is the leader I personally do not see Google and IBM to be strong competitors to MSFT in this space, and MSFT has advantages where it comes to their large installed base of users, which Google doesn't have.

 

I agree that cloud revenues will increase but only by cannibalizing desktop shrink-wrapped software and legacy server technologies. In addition I believe that cloud revenues are going to be lower than shrink-wrapped software revenues due to the need to provide both hardware and software. The pie for Microsoft remains the same size...just the categories shift.

 

I agree with you that Microsoft does have an intrinsic advantage in the Enterprise over Google and IBM due to their Office/Server technologies which are not going anywhere for a very long time. However I have poor ability to predict who will win in the cloud. I expect there to be innovations that no one see coming and its not clear to be that Microsoft will be the one to capture the new markets that will emerge.

 

For Microsoft there is only one thing that I have always counted on and known with strong certainty and that is that Office, Windows OS and other Microsoft business technologies are going to be part of the Enterprise for an extremely long time (> 20 years). I want all the cash they generate to be thrown straight at me or not at Minecraft.

[dwy000]

 

I agree that cloud revenues will increase but only by cannibalizing desktop shrink-wrapped software and legacy server technologies. In addition I believe that cloud revenues are going to be lower than shrink-wrapped software revenues due to the need to provide both hardware and software. The pie for Microsoft remains the same size...just the categories shift.

 

While far from being an IT expert, I would have to disagree with some of the points you made.  The idea that cloud revenues will only cannibalize shrink wrapped and legacy would imply that there is no growth in software revenues as a whole - which I think even the most conservative or pessimistic of us would disagree with.  In addition, cloud is opening up new customers and new applications that were previously either not available or inefficient for all but the Fortune 100.  The whole concept of "big data" is built largely off the back of the efficiency of shared infrastructure.  And the analytics industry is exploding from the benefits of more data and lower cost computing.

 

Again, I'd look for more IT related posters to comment on this, but I'm not entirely convinced that the economics of selling cloud based software is, over the long term, less profitable than selling shrink wrapped or customer-hosted software.  It may be the case for the old "service contracts" which are nothing but a license to print money, but for the software itself MSFT, Oracle, IBM, etc. are likely charging more per year for SaaS than they would have under a straight sale every couple of years.

 

It would seem to me that the efficiency and lower upfront cost of cloud based solutions is creating a massive increase in software solutions and analytics.  While there will be reduced revenues in the early years for those who previously relied on shrink wrapped sales, overall the use and revenues from software are growing rapidly and cloud would only make this even stickier for those providing entire solutions.