Up 37% year to date, Microsoft (NASDAQ:MSFT) remains one of the winners amid the novel coronavirus pandemic. But, while many investors have reason to rejoice, might MSFT stock finally be running out of steam?
Microsoft’s success this year started with its Teams division. Microsoft Teams grew exponentially due to the coronavirus pandemic and the increased demand for remote work.
For example, in the month of October, the company indicated a 50% increase in daily active Teams usage over the past six months. (This was on top of the big-time growth it experienced at the start of the pandemic.)
But its success with Teams wasn’t the only hot news item. In the summer, rumors circulated that it would buy social media powerhouse TikTok. Adding to all the hype, its gaming division made headline-worthy news with the buyout of ZeniMax Media. And that doesn’t even factor in the release of its Xbox Series X next-generation console on Nov. 10.
It was a big year for Microsoft — a company that has managed to reinvent itself and continually justify its placement among other premier tech titans like Apple (NASDAQ:AAPL). Although some of the promising catalysts like a TikTok buyout never came to fruition, Microsoft stayed in the spotlight. But while there have been plenty of reasons for bullishness toward MSFT stock lately, the hype might be fading.
Can MSFT Stock Keep Running Higher?
One of its key pandemic catalysts is showing limitations thanks to stronger competition. Specifically, Salesforce (NYSE:CRM) announced “definitive” plans to acquire Slack Technologies (NYSE:WORK) on Dec. 1. This is one move of many by Salesforce to provide a serious alternative to Microsoft as the go-to work platform among professionals.
Prior to the acquisition, Slack’s platform was in direct competition with Microsoft Teams. Now, Salesforce can intertwine its existing services with Slack’s platform to create an even more appealing alternative. Although it will take time for an enhanced version of Slack (or a Salesforce-branded version) to be fully realized, this news dampens some of the hype around Teams as a long-term catalyst for MSFT stock.
It’s also part of Salesforce’s greater strategy to overtake Microsoft in the professional services space. According to Business Insider analyst May Teng, Salesforce CEO Marc Benioff has a long-standing rivalry with MSFT. Although Benioff hasn’t managed to dethrone “Mr. Softie” — CRM has lost previous bids to Microsoft in the past, such as the acquisition of LinkedIn — this latest move does increase Salesforce’s competitive capabilities significantly.
In fact, Gregg Johnson, a former CRM executive, argues that “Slack is probably a bigger threat to Microsoft in some ways than Salesforce … because Slack’s use case hits at the heart of Microsoft’s information worker’s productivity suite.”
But as realistic as this threat may be, you wouldn’t notice it by just looking at MSFT stock’s performance the past few days. Over a five-day span, the stock is basically even. While that’s far from stellar performance, it’s not one of those crazy downward swings we’ve seen in countless other names recently either.
The Bottom Line on Microsoft
The pandemic enabled the rapid growth of Microsoft Teams in 2020. And Microsoft’s stock climbed higher this year on this catalyst. At this point, it’s safe to assume that much of that hype is now baked into the price of MSFT.
However, that doesn’t mean Teams will only shine this year. The reach of this catalyst is much further, as work from home initiatives become the new normal. Only now, the news of the Slack buyout from Salesforce throws a wrench in expectations.
Will it doom the prospects for MSFT stock? No. But it does give reason for investors to question if the success in Teams will continue to impress as much after the purchase is finalized and its competitor’s product is refined.
Simply put, it’s time to watch Microsoft even closer than before. Thankfully, Teams isn’t the only thing it has going for it — its cloud and gaming divisions are both worthy of consideration. However, it has been one of the newer bullish talking points. And it seems like the hype behind it might hit a wall sooner than we thought.
On the date of publication, the author responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.
