End of April, Microsoft Corporation (MSFT) released its fiscal third quarter results, and much like its big tech siblings, it arrived with a mixed bag.
Profits were down 2 cents and revenue was down slightly. The stock sold around 5% after the figures were released.
When something like this happens, my inner contrarian looks to see if there’s more opportunity here than real danger. And after looking at the rest of the numbers, and considering the transient nature of big tech companies like MSFT, intel company (INTC), Apple Inc. (AAPL), International Business Machines Corp. (IBM) and others, I think there are some very positive points in the report.
So bright that Microsoft stock is a high-value game that’s oversold.
Like slowing iPhone 6 sales for APPL or weak PC chip demand for INTC, the fact that Windows operating systems are no longer the high-margin cash cows they once were is not A suprise. It was inevitable.
Here’s what gives MSFT its long-term muscle
As consumers and businesses move away from desktop computers in favor of laptops or mobile devices (phones and tablets), the revenue model will shrink in these legacy businesses.
But what makes a dog or a darling isn’t an ageless product line, it’s being able to pivot and open up to new and growing areas. And that’s what MSFT does. He took a big step towards cloud computing.
Yes, it will take some time for Microsoft to transition from Windows to its cloud business, but the numbers show that MSFT is on track for cloud success.
Cloud revenue grew 8% for the quarter and its Azure division grew 120% in constant currency.
Another interesting tidbit from the earnings report was the big jump in laptop sales. Its Surface Pro and Surface 4 launched to great acclaim; revenue increased 61% from the prior year quarter. It’s also a bullish sign that consumers are willing to spend on high-end laptops that don’t have an apple on them.
And while Microsoft recently announced the closure of its Spark project, a game creation tool for Xbox users, it was definitely a niche product and it’s encouraging to see MSFT making the move. This is all the more true as none of the team members have been fired; all have been redeployed to other projects requiring resources.
Keeping talent is a very smart decision, especially in these difficult times.
It’s also a bullish sign that the number of Xbox Live monthly active users grew 26% year-over-year. Rumor has it that many of the Project Spark team were headed towards the next big thing in tech – virtual reality. Or, in Microsoft’s case, augmented reality.
The company has released a development copy of the Hololens for developers — people who will create apps and games for the device — for $3,000. The consumer version will be much cheaper.
But it’s a big bet for MSFT because facebook inc. (Facebook) has already moved into the VR space with Oculus Rift. The question will be whether people will choose virtual reality over augmented reality, or vice versa, in the long run.
The difference between the two is that in VR you are immersed in the world you are looking at. With AR, objects are superimposed over the room you’re in, so you always see the couch and the coffee table. These are two divergent experiences and someone’s bet is not likely to pay off.
But given MSFT’s powerful and popular Xbox brand and reputation in the gaming community, the Hololens will have strong followings from the start.
Down 8% year-to-date, Microsoft stock is a bargain with a solid plan in place.
Richard Band’s The profitable investment advisory service helps savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk approach have earned him seven Best Financial Advice awards from the Newsletter and Electronic Publishers Foundation.
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