Having added Microsoft to my investments two years ago, it thus far performed well. It has been exciting to have them in my portfolio, and I am planning to add more in the long-term as they remain one of the best companies with excellent dividends. I believe it is a good company to hold onto. A recent report emerged about Microsoft, and it is confirmed that there are talks to buy Tiktok company. The confirmation of the deal must happen by the 15th of September. All these are indications that Microsoft is the stock to add to your portfolio.
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Microsoft is among the top leaders in the tech company. However, with the recent statement that was released in line with buying the Tiktok app owned by the Chinese Technology Company, things are a bit sketchy. It remains unsure if Microsoft intends to buy the whole Chinese company or just the one located in the US. As the talk about finalizing this deal is still on, it’s expected that if Microsoft successfully acquires it, they could simultaneously resolve a recent controversial development in Washington DC and have more influence in consumer technology.
The development sparked an outrage when it was first published. Though choosing Microsoft as a company now on your portfolio is a good buy, in my opinion, obtaining a slice of Tiktok will give it an added edge.
Buy, sell, or; hold the Microsoft stock
Taking a look at Microsoft’s revenue in the past eight years, there are things I’ve observed. The company has three major segments of the business. They are productivity and business processes, intelligent cloud, and more personal computing. In the past five years, the mega business has gone up in value. According to the June report, Microsoft has a revenue of $38 billion a rise above the expected $36 billion. It has revenue growth of 13 per cent on an annual basis in the quarter, which closed on the 30th of June. In contrast, 15 per cent growth in revenue was seen in the prior quarter, according to the released statement.
Why you need to buy
Observing the Growth of products and services of Microsoft, the numbers are exclusively wonderful, which shows the rapidness of growth level. Microsoft’s main cloud business, Azure, has been growing up well and continues to grow. In the Q4FY20, the product had a growth of 47 per cent. Dynamic products and cloud services had a growth of 13 per cent, office 365 commercials experienced a nice growth of 19 per cent, excluding the traffic and cost of acquisition.
The search ads made -18 per cent, server products, and cloud services made 19 per cent, windows commercial and cloud services made 9 per cent. A 67 per cent growth was seen from the XBOX content and services as a result of the attention of gamers and viewers. This is because a lot of kids are not in school, and many people are not employed as a result of the Pandemic. All these points are confirmations that Microsoft products have performed well even with the difficulties caused by the Pandemic.
Microsoft has acquired many top companies in the world. About two years ago, they acquired the GitHub company at $7.5 billion worth, is the world’s leading platform for developing software. It is a platform that has millions of developers where they learn, share, and collaborate in building the future. Also, in 2016, Microsoft acquired LinkedIn with a massive deal of $26.2 billion. When you look at these companies acquired, you will notice there’s more to Microsoft than just their products such as Azure and others. LinkedIn and GitHub, among other companies acquired by them, are convincing enough to add them to one’s portfolio.
The brain behind the wonderful deals of Microsoft soft is traceable to Satya Nadella, who had brought the company right back on the sales track. When he took over the company in the year 2014 as the CEO, they were on fast losing steam with the disaster experienced in the release of Windows 8. The employees struggled behind closed doors to fight for supremacy continuously and at a point in time, both the consumers and developers began to lose interest in Microsoft.
An American businessman and investor, Steven Anthony Ballmer, left the company after a total of 14 years, which looks like he hasn’t performed well. Observing the stock price during Ballmer’s period as the CEO, the company made absolutely nothing. In other words, the stocks were down. It was this era Apple came back to replace Microsoft as the biggest company in the world. This is how essential a CEO might impact a business. All thanks to Satya Nadella for a wonderful turnaround in Microsoft.
To back up the good job done by Satya, the numbers revealed on the financials of the company are convincing enough. In 2017, the company had revenue of $ 96 billion, in 2018 $110 billion, in 2019 $125 billion, and for 2020, they have already recorded $143 billion as their revenue according to the income statement of the company. They also had a massive growth in revenue of $29 billion from 2017 to 2019. With an extraordinary rise in the company’s net income of $16 billion in 2018, $39 billion in 2019, and; 44 billion in this year’s record, it’s an indication of consistent progress in the company. The Balance Sheet also shows cash of $137 billion and long-term debt of $62 billion. This means that there would still be a massive wealth if this debt is settled from such cash. From the information gathered from the company’s balance sheet, it looks reassuring.
Why you need to hold
Getting back to the discussions, if Microsoft is willing to purchase the whole Tiktok’s company, this would cost around a whopping sum of $59 billion. This implies that either there’s an increase to the standing debt of the company or the cash slashes down to purchase the company. If they are willing to buy only the American Tiktok company for the sum of $59 billion, it is advisable to buy the stock. With the available cash, this wouldn’t be hard for the company to buy.
As of 4th of august, Microsoft has a market cap of $1.6 trillion, a trailing PE of 37.6 per cent, and a forward PE of 31 per cent. The company also has a near double-digit growth that stands 9.60 per cent with 11 per cent expected in the next year. They are also poised to go higher in the coming years.
Consideration for selling
Considering what the valuation measures of Facebook like, you might begin to wonder if Microsoft is overvalued with what the expected earnings are. Facebook has a forward PE of 31 per cent. Also, they have a growth rate of 11 per cent and an expected growth rate of 24 per cent. With this, would you not think Facebook is undervalued?
After a review of the company’s valuation, I am of the submission that the tradings of the company are extremely rich but not rich in valuation trading. The business looks promising as it is based on subscriptions to services, cloud streaming, and recurring revenue streams. From my viewpoint, the continuous rise in the company through their new CEO promises more productivity. This has made me gain more interest in this company even though they have been trading at a very little rate.
To summarize this, irrespective of the deal the company has with the Tiktok company and either it goes through or not, I would personally rate this stock as a hold. The recent changes in the company have confirmed that indeed, Microsoft is a great company to invest in. There is just too much progress and diversification to turn down this company.
With the amazing changes experienced by Microsoft, there’s more to expect from this company as they keep growing every day. Of course, be reminded that this is just my opinion and should not be law to you in any way. If you do not maintain the same sentiment with me in this company, then please let me know through the comment section. If you’ve benefited from this blog, encourage me by sharing and liking it. As this would encourage me for more wonderful posts. To the newbies on this page, please endeavour to subscribe to my channel.
Recommended books or further rading:
- The Definitive Book on Value Investing
- Investing QuickStart Guide
- A Plain English Guide to Thinking Globally and Investing Wisely
- Smarter Investing: Simpler Decisions for Better Results
- Intelligent Investor: The Definitive Book on Value Investing
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