Microsoft Corporation Reports a Lot of Good News (MSFT)

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It certainly looks like CEO Satya Nadella is moving Microsoft (MSFT) into the new century in the right way.

microsoft stock-msftChanging the culture and focus of a company with a $435 billion market cap takes time, but all indications are that the transition is complete and MSFT is now moving forward in its new direction with increasing vigor.

This was demonstrated in late January when MSFT reported Q4 earnings and beat Wall Street expectations by more than 10%. That is an impressive number, given that most tech firms are having a hard go of it right now. Part of MSFT’s advantage is its focus on transitioning its current massive software user base to its cloud-based services. This is one sector that is leading the powerful growth we’re seeeing.

To calculate how much MSFT could make from its online platforms if demand remained stable, the industry uses what it calls an annualized run rate. This isn’t a solid number, but it’s the best way to estimate how well online services are growing.

In Q4, MSFT’s run rate was $9.4 billion, up from $8.2 billion in Q3. That’s a big move in one quarter. And by 2018, MSFT is hoping to have that run rate up to $20 billion. That means more than doubling its online services business in less than 2 years.

The Future of MSFT

Certainly this is the kind of talk that gets analysts and other investors excited. And that excitement has been reflected in the price of the stock recently. But as the old saw goes, buy the rumor and sell the news … which seems to be what happened to MSFT in recent days.

Year-to-date MSFT stock is actually underwater 4%. After gapping up before its earnings announcement, it sold off and now looks like it’s trying to consolidate in the low 50s for a while.

But Microsoft is still looking towards its future. Just this week, MSFT announced it bought SwiftKey, a major word prediction AI firm, for $250 million. This tech will likely be deployed across a number of the company’s units, helping enrich its personal assistant app Cortana, as well as strengthening Word and other productivity applications, including its mobile phones.

Its Xbox gaming platform continues to grow solidly as well. According to its recent report, active Xbox Live users have grown 30% in the past year to more than 48 million.

MSFT also continues to explore new technologies to make its operations not only more efficient, but greener as well. It recently announced it had completed an initial stage experiment with putting its servers deep underwater to help keep them cool without using massive amounts of energy to do it. The results are promising.

Its 2.8% dividend yield is certainly respectable given the amount of growth ahead for MSFT, but the stock is slightly expensive right now. Any downward move from here, however, should be a great time to start buying.

Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/msft-reports-lot-good-news/.

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