Microsoft (NASDAQ:MSFT) looks as if it’s set for a banner year. The recent news that Windows 10 is running on more than 900 million devices and is expected to go over 1 billion sometime in 2020, has to be considered a positive for Microsoft stock. As if Microsoft needed another reason for investors to buy it.
Nonetheless, it’s a reminder that the company that’s become more about the cloud than its legacy product, Windows 10, still has a lot of life left in it. One shouldn’t gloss over the fact that it’s still an important part of Microsoft’s business.
Microsoft’s Original Goal
Microsoft’s original goal was to get to 1 billion Windows 10 devices within two or three years of its launch on July 29, 2015.
“No other platform working in any ecosystem is available on 1 billion devices,” Terry Myerson, the former Microsoft executive in charge of Windows, said in 2015.
To put this in perspective, Apple’s (NASDAQ:AAPL) latest macOS, Mojave, was on just 4.4% of the world’s laptops and tablets during the 12 months between August 2018 and August 2019. By comparison, Windows 10 was on 42.7% of the world’s computers.
What’s even more impressive is that Windows 10 went from 800 million devices to 900 million devices in just six months. That’s 16.7 million devices per month. It added the same amount of devices per month to get from 700 million to 800 million. However, in terms of percentage growth, its move from 700 million to 800 million was greater, at 14.3% versus 12.5% from 800 million to 900 million.
Given the larger base, it makes sense that growth is slowing.
But make no mistake, 1 billion devices is a huge number. To get to 1 billion within five years of its launch will be a tremendous accomplishment no matter how you calculate Windows 10’s growth.
What Does It Mean for Microsoft Stock?
One of the reasons the number of devices using Windows 10 continues to grow is that Microsoft is ending Windows 7 support in January. Given the lack of support, it makes sense for users to upgrade to Windows 10.
As the upgrades dwindle, some believe so too will Microsoft’s Windows business.
In the fourth quarter, Windows revenues grew 7% to $5.63 billion, with strong results from both Windows OEM and Windows Commercial. That was offset by an 8% decline in Windows OEM non-Pro revenue.
More importantly, Windows made a major contribution to its More Personal Computing segment, which saw a 4% increase in revenue, an 8% increase in gross profits, and 18% increase in operating profit.
As for Windows 7, Microsoft management believes it will continue to benefit from the end of Windows 7 beyond Q1 2020. That’s great news if you own Microsoft stock.
The Bottom Line on Microsoft Stock
For all of 2019, Microsoft’s More Personal Computing segment generated an 8% increase in sales to $45.7 billion with a 21% increase in operating income to $12.8 billion. Much of the increase coming from Windows, which saw an $877 million increase in sales to $22.8 billion.
While Windows 10 is bound to slow down once it hits 1 billion devices, if you own Mmicrosoft stock, it’s hard not to feel good about the future.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
