MSFT - Microsoft

[VAL9000]

 

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.

 

I think probably the bigger shift in the enterprise software space resulting from a move from on prem software to SaaS is the buying cycle.  It used to be that if a business needed to buy some software, IT would be the division of the company that would manage the purchase, installation, configuration, etc.  They were a necessary gateway to deploying new solutions.  That is changing.  With cloud solutions, IT is no longer required to buy the associated infrastructure and manage the integration of multiple enterprise systems.  The consequence of this is that their role in the purchase of SaaS solutions is much smaller than On Prem solutions. 

 

All large enterprises cite IT resource constraint as a leading reason for why they only invest in a few large software projects every year.  By shifting a significant chunk of the burden of a software deployment to the vendor of that software application, IT resource constraint as a leading objection for investment is removed.  This speeds up sales cycles, which results in more revenue being secured given the same investment made on the vendor side.

 

Some corrections on the revenue side.  Most enterprise software is sold as both a perpetual license with an annual maintenance fee.  SaaS normally doesn't have an upfront license fee, but has higher recurring revenue to account for the annual maintenance plus infrastructure costs, ops costs, etc.  So the recurring revenues should be higher in a SaaS model but the license revenues will go to zero.  Many large organizations making the shift from on prem to saas will have a couple of years of pain while this transition is underway.

 

Microsoft's model has historically been different.  Their software is more aligned to the shrink wrapped software framework of just a perpetual license.  Azure, 365, and other cloud offerings will represent a much larger shift in revenue mix because of this.  Although one could argue that given the nature of Windows and Office upgrade cycles their model was 100% recurring revenue.  I'd completely accept this argument and also point out that 365 is priced at about the same level as buying Office every 3 years.

 

Just food for thought.  Happy New Year all!

 

[handycap5]

This volume-deflation question is critical, thank you for bringing it up. On one hand, software appears to be a deflationary product, particularly at the low-end. On the other hand, the "content" of SaaS providers appears to increase significantly, as the vendor replaces some functions that the company used to do internally. Bernstein has done some work on how Office 365 nets more revenue for Microsoft and more savings for the company, functionally by removing revenue from the VARs and similar.

 

Does anyone have any research, studies, or news stories that covers this subject in detail?

[rpadebet]

Miss this guy..

 

https://mtc.cdn.vine.co/r/videos/03A347D86B1164826910489010176_3febe6110a8.1.5.12645430025254455270.mp4?versionId=Lv8k5eQbaqPDSZC4JkKBZRMFS6TdngjR

[fareastwarriors]

Microsoft (Yes, Microsoft) Has a Far-Out Vision

 

http://www.nytimes.com/2015/05/03/technology/microsoft-yes-microsoft-has-a-far-out-vision.html?hpw&rref=technology&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well

[Jurgis]

I am still not sure if Nadella is a good consumer-facing CEO. I am pretty sure he'll do well in enterprise. But consumer products... well, there's a gulf from HoloLens prototypes to workable product.

 

I am also not sure it's safe to just abandon the smartphone area like this guy suggests:

 

Brad Silverberg, a venture capitalist in Seattle and a former senior executive at Microsoft, said he was encouraged that the company was doing that rather than playing catch-up in smartphones.“That battle is already fought and lost,” Mr. Silverberg said. “You’ve got to change the game.”

 

It's like telling Apple in 1990: "That PC battle is already fought and lost. Hey, wait another 15-20 years and you might capture the next platform".

 

In terms of MSFT stock, I think there is still a big risk of the revenue/profit falloff from moving to "almost free" Windows/Office. I am afraid that this falloff won't be covered enough by enterprise.

 

Currently no position in MSFT stock.

[Palantir]

Actually, Apple did admit that the battle was lost back then. There was a SJ interview where he admitted that Apple had lost the PC battle, and he wanted to move on to the next thing. I think it is true....playing catchup while their rivals move on to the next thing? I'd rather they move on to the next thing while continuing to push in phones.

[rpadebet]

So are we doing this CRM thing or not?

 

Ballmer used to decide these sort of things quickly....

[wachtwoord]

So are we doing this CRM thing or not?

 

Ballmer used to decide these sort of things quickly....

 

I already sold off 75% off my stake (which was 20% of my portfolio at some point) during this year due to the high price of the stock but reading this I might have to sell the rest too.

[rpadebet]

So are we doing this CRM thing or not?

 

Ballmer used to decide these sort of things quickly....

 

I already sold off 75% off my stake (which was 20% of my portfolio at some point) during this year due to the high price of the stock but reading this I might have to sell the rest too.

 

Dont worry too much, IBM, GOOG, SAP and Oracle could get them as well. Either that or we get the top bid in as is usual for this company.

[ZenaidaMacroura]

So are we doing this CRM thing or not?

 

Ballmer used to decide these sort of things quickly....

Lol I laughed so hard

[bci23]

I really don't think Value Act would allow for an acquisition like this.

[rpadebet]

Wtf?

 

http://www.reuters.com/article/2015/05/08/us-salesforce-m-a-microsoft-idUSKBN0NT01Q20150508?feedType=RSS&feedName=businessNews

 

Expensive? For MSFT? I am sorry I don't understand this company anymore... 8)

[wachtwoord]

Wtf?

 

http://www.reuters.com/article/2015/05/08/us-salesforce-m-a-microsoft-idUSKBN0NT01Q20150508?feedType=RSS&feedName=businessNews

 

Expensive? For MSFT? I am sorry I don't understand this company anymore... 8)

 

YES!

[Liberty]

I like a lot of the moves that microsoft has been making since Ballmer left.

 

This is a surprisingly classy move from them:

 

https://www.youtube.com/watch?v=5Olg_FFD-vM

 

Still a bit funny to see them go from their carbon copy of the Apple store to the real one, but still, classy move, Microsoft.

 

They seem to be in a transition from trying to be someone else (mostly Google and Apple) to being themselves, which I think is a good strategic move. As an enterprise software company and cloud infrastructure company, they can lead, and if they focus on being a horizontal player that is present on all platform rather than still try to be a vertical player, which puts them in competition against the dominant platforms where they need to be, there will be a lot less friction.. they'll flow downhill, so to speak.

[fareastwarriors]

http://www.barrons.com/articles/microsoft-faster-stronger-better-1450511148?tesla=y&mod=BOL_twm_ls

 

Microsoft: Faster, Stronger, Better

 

Satya Nadella has shifted Microsoft’s focus to the cloud. Shares could rise 30% in 18 months, plus a 2.7% yield.

[Palantir]

^Unfortunately for the value guys, they've long exited the stock...just when it is going to get interesting.

[Phaceliacapital]

Qatalyst Partners LinkedIn Calculation:

 

Qatalyst Partners performed an illustrative discounted cash flow analysis, which is designed to imply a potential, present value of share values for the Class A common stock as of March 31, 2016 by:

 

·                  adding:

 

·                  the implied net present value of the estimated future unlevered free cash flows of LinkedIn, based on the LinkedIn Projections, for the second through fourth quarters of calendar year 2016, and for calendar year 2017 through calendar year 2019 (which implied present value was calculated by using a range of discount rates of 10.0% to 13.0%, based on an estimated weighted average cost of capital for LinkedIn);

 

·                  the implied net present value of a corresponding terminal value of LinkedIn, calculated by multiplying the estimated Adjusted EBITDA (as described in the section of this proxy statement captioned “The Merger—Financial Forecasts”), less any capitalized software and website development costs (excluding capitalized stock-based compensation), which we refer to as the estimated “Modified EBITDA,” in calendar year 2020, based on the LinkedIn Projections, by a range of multiples of fully-diluted enterprise value to next-twelve-months estimated Modified EBITDA of 12.0x to 18.0x and discounted to present value using the same range of discount rates used in the first bullet above;

 

·                  the implied net present value of LinkedIn’s forecasted tax attributes outstanding at the end of calendar year 2020, based on the LinkedIn Projections (which implied present value was calculated by using the same range of discount rates used in the first bullet above); and

 

  LinkedIn’s cash net of the face value of outstanding convertible notes and book value of minority interests, as provided by LinkedIn management as of March 31, 2016;

 

·                  applying a dilution factor of approximately 12%, as projected by LinkedIn management, to reflect the dilution to current stockholders over the projection period due to the effect of future equity compensation grants; and

 

·                  dividing the resulting amount by the number of fully-diluted shares of common stock outstanding as of March 31, 2016, adjusted for restricted stock units and stock options outstanding as of March 31, 2016, as provided by LinkedIn management.

 

Based on the calculations set forth above, this analysis implied a range of values for the shares of common stock of $156.43 to $238.39 per share.

[fareastwarriors]

Look Who’s Back! Microsoft, Rebooted, Emerges as a Tech Leader

 

After years of missteps, the software giant is among the few titans of the 1990s to figure out the post-desktop world

 

http://www.wsj.com/articles/look-whos-back-microsoft-rebooted-emerges-as-a-tech-leader-1481900876

[DooDiligence]

Look Who’s Back! Microsoft, Rebooted, Emerges as a Tech Leader

 

After years of missteps, the software giant is among the few titans of the 1990s to figure out the post-desktop world

 

http://www.wsj.com/articles/look-whos-back-microsoft-rebooted-emerges-as-a-tech-leader-1481900876

 

Wasn't there a book back in 2004 with a similar "Rebooted" title about Ballmer's Microsoft?

 

I couldn't read the WSJ article (paywall...)

[wachtwoord]

Look Who’s Back! Microsoft, Rebooted, Emerges as a Tech Leader

 

After years of missteps, the software giant is among the few titans of the 1990s to figure out the post-desktop world

 

http://www.wsj.com/articles/look-whos-back-microsoft-rebooted-emerges-as-a-tech-leader-1481900876

 

Wasn't there a book back in 2004 with a similar "Rebooted" title about Ballmer's Microsoft?

 

I couldn't read the WSJ article (paywall...)

 

Navigate there via Google and avoid the paywall.

[DooDiligence]

Got it (after getting rid of pop ups) thanks!

 

I'm a Mac guy & recently went into a Microsoft store in Miami (mainly to see the Surface Pro & what they had on offer for mobile.)

 

Nothing really enticing to me but that doesn't mean they're not producing useful products for others (I did; however, notice that the store was laid out in an eerily similar fashion to an Apple store except that it had a much darker feel to it.)

 

I remember years ago using FrontPage (didn't know how to do my own HTML & CSS at the time) & dealing with server extensions was a pain (switched to linux...)

 

Anyone out there a power Microsoft user (Azure, anything) who see's them really shaking things up?

 

I'm kind of looking as an Apple shareholder...

[rb]

I run on Microsoft and I'm really happy. It does what I need it to do and it does it very well. I'm also a Microsoft shareholder and I'm happy in that regard as well.

 

Microsoft products are actually doing really well in the enterprise space. Windows Server does what its supposed to do well. Exchange totally dominates the email space. The Hyper-V hypervisor is becoming really popular and they're killing it in the database space with SQL Server. I'd actually like to see them become more aggressive with other offerings like Dynamics and get to some sort of conclusion with the online division that's been sucking billions for yeeaaars. I have no experience with Azure but looks like it's doing well by the sales numbers.

 

The thing with Microsoft products is that they're never really the best in their field but they're like 90-95% there and cost a fraction of what the best in the field costs. Because of that they don't get a lot of hype from the techies. The techies would like to use something else cause they like to play with the bells and whistles. But when it comes to a purchase decision a businessman will go with Microsoft over the competition.

 

I hope this sheds some more light Doo.

[rb]

Shalab,

 

I see the metrics that you're putting up. I also understand the public fascination of Apple vs. Microsoft. I'm a mac, I'm a PC etc.... That would have been true 20 years ago. However today they are vastly different companies. Apple is a consumer electronics company. Microsoft is more of an IT infrastructure company.

 

They have different competitive advantages and different risks. Apple is at risk of commoditation of iPhone (Google clear and present danger). Microsoft is at risk of changing infrastructures as well as others. Though I will admit MSFT seems to have a bit of an identity crisis. They would like to be a great consumer products company and they don't seem to do that well on that front while they're killing it on the infrastructure side.

[DooDiligence]

Shalab,

 

I see the metrics that you're putting up. I also understand the public fascination of Apple vs. Microsoft. I'm a mac, I'm a PC etc.... That would have been true 20 years ago. However today they are vastly different companies. Apple is a consumer electronics company. Microsoft is more of an IT infrastructure company.

 

They have different competitive advantages and different risks. Apple is at risk of commoditation of iPhone (Google clear and present danger). Microsoft is at risk of changing infrastructures as well as others. Though I will admit MSFT seems to have a bit of an identity crisis. They would like to be a great consumer products company and they don't seem to do that well on that front while they're killing it on the infrastructure side.

 

Thanks for your insights.

 

I find that a lot of casual end users seem to view this in a hostile/territorial way (Apple vs MS & Android.)

 

"My phone/pad/computer is better than yours & you're an idiot for choosing xxx!"

 

I'm totally agnostic as to other peoples choices but am somewhat of a fan as to my own (bleeds over into social issues for the most part too.)

 

I'm kind of thinking that Apple, MS & Google all have their strengths (with overlaps) & as long they stick to their knitting & keep trying to inovate then they'll all 3 still be around & dooking it out 10 years from now (in some form or another, although I tend to believe that Google has the best chance of being prosperous as well as still around, which is reflected in their valuation.)

 

Your observation about MS's aspirations can probably be inverted for Apple (hmmm, I need to read up on the progress of their IBM & SAP partnerships...)

 

Ditto on Google doing a Mr. Clark on Apple (remember the cellulose coated smart bomb in the book?)

 

Amazon & infrastructure?

Oracle & IBM??

 

Business compinations at some point???

[Jurgis]

MSFT AI work and plans:

 

https://www.wired.com/story/inside-microsofts-ai-comeback/

 

Canadian connection for our northern friends too.