It isn’t your mother’s Microsoft Corporation (NASDAQ:MSFT) anymore. In fact, with so much going for it, I’ve put MSFT stock on my “consider” list for my own stock advisory newsletter, The Liberty Portfolio. That’s because Microsoft really did come of age in the twenty-first century once Steve Ballmer got the heck out of the way.
The company isn’t content to just let Amazon.com, Inc. (NASDAQ:AMZN) take over the world with its AWS cloud service.
MSFT has made Azure a lot more affordable, appealing to smaller enterprises by reducing its Window Server to run in 30GB. Meanwhile, large enterprises have selected Azure as the preferred choice. In the last quarter, Azure revenue increased by 93%.
MSFT Stock Has A Lot Going for It
The decision to make Azure more affordable truly comes out of necessity. Amazon kills competition by forgoing big margins, to put the squeeze on competitors. Microsoft, however, has tons of cash and plenty of patience, so it can afford to compete on price.
I have to admit that I never really got LinkedIn and still don’t. There are 500 million members, assuming that number isn’t fudged, and MSFT is monetizing the platform more than I thought it could. Revenue and gross margin growth did actually climb about 4% in the last quarter.
Still, if MSFT stock can leverage LinkedIn — and I’m starting to believe it can — that could also be a driver for future growth.
Personal computing has not been abandoned by Microsoft. Windows is still a monster and revenue did actually increase in this segment by 4%. Gaming is also an ever-evolving beast that Microsoft retains a name in. Gaming revenue increased 4% in the last quarter as well. Now, while $78 million in revenue is a rounding error for MSFT stock, I think that there is untapped potential in the 52 million users of Xbox Live.
It isn’t the hardware that interests me here. It’s the possibility of all these live users. Now, I’m not a gamer, but I know a few. I also am tuned in to what’s happening on a content level with VR and immersive theater. What I’m learning is that, when it comes to gaming, content is everything. It can’t just be a great first-person shooter game. There needs to be a solid story. It’s no different than TV and movies.
What I’m seeing out here in Los Angeles is frustration with the VR content that is being produced, while immersive theater is doing some wild and wonderful things. There is enormous potential for immersive theater to influence VR, and when combined with gaming elements, for gaming to take on an entirely new dimension.
Games that permit you to interact via VR, through Xbox Live, that allow you to literally interact with other people and characters around the world in an actual adventure are going to be the next wave.
They will take a while to develop, but when they do, I think that’s where these 52 million users are going to come into play. Imagine being the star of your own action film, psychological thriller or some insane version of “TRON.” What I’m discovering is that immersive theater is incredibly addictive because it is so real, and reaches participants at a very visceral level.
Bottom Line on Microsoft Stock
If all these elements can be combined in the right way, this division could become a blockbuster for MSFT stock.
Meanwhile, Microsoft stock has a whopping $126 billion of cash on hand. It generates $25 billion of free cash flow, of which only a third is used to pay a dividend. With all this cash, the company can do anything it wants. It just needs the vision to execute.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he had no positions in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.