Micro .ftNo. (Nasdaq: MSFT) Thanks to CEO Satya Nadella’s “Mobile First, Cloud First” strategy, the stock has achieved a total return of over 400% over the past five years. Under Nadella, who took the helm in 2014, Microsoft expanded its cloud services, integrated them into Windows 10, launched new mobile apps on iOS and Android, introduced new Surface devices, and expanded its Xbox gaming ecosystem.
With those efforts, MicroSt., Which was often dismissed as a mature tech stock, turned into a lucrative growth stock again. It has rallied more than 50% in the last 12 months as it shuts down Trade War, COVID-19 and other macro headwinds. Investors may be reluctant to buy a stock of micro .ft at these levels, but I believe it could be even higher at the end of the year, for four simple reasons.
Image source: micro .ft.
1. Its commercial cloud revenue is expanding
Micro .ft’s “commercial cloud” revenue grew 36% to more than અ 50 billion, more than a third of its top line in fiscal year 2020 (ending June 30). That business includes OfficeFace 365, cloud-based versions of its productivity software; Its CRM (customer relationship management) platform dynamics; And its cloud infrastructure platform Azure.
Azure is the segment’s main growth engine, with its revenue growing year-on-year at an average rate of 60% over the last four quarters. Microsoft does not disclose the exact revenue of Microsoft Ft Azure, but Canalis estimates that it controlled 20% of the cloud infrastructure market in the second quarter of 2020 – putting it in second place. Amazon (Nasdaq: AMZN) Web Services’ (AWS) 31% share.
Azure will still have plenty of room to run for three reasons. First, companies that compete against Amazon, especially retailers, will use Azure instead of feeding Amazon’s most profitable business. Second, Microsoft recently beat Amazon to secure the Pentagon’s lucrative 10 10 billion JEDI (Joint Enterprise Defense Infrastructure) agreement to upgrade its cloud infrastructure – which could pave the way for more government agreements.
Finally, the broader cloud infrastructure market will continue to expand as people use more cloud-based services, apps and streaming services. Grand View Research estimates that the global cloud computing market can still grow at a combined annual growth rate of 14.9% between 2020 and 2027.
2. Xbox Series S and X are going to be launched
Microsoft will launch its next-gen Xbox gaming console, Series X and Series S next month. The Series X will cost $ 500, while the cheaper, less powerful and all-digital Series S will cost. Will be 300.
SonyNo. (NYSE: SNE) The PS5 will be priced the same as the Series X, but its all-digital PS5 digital edition (which is a hardware game just like its older brother) will cost 400. The MicroSFT Series S PS5 will be less powerful than the Digital Edition, but the casual 100 difference could win over more casual gamers.
Microsoft has also recently acquired Zenimax, which is owned as an iconic franchise. Doom, To fall, Wolfenstein, And The Elder Scrolls, To strengthen its game publishing division and resist Sony’s exclusive games.5 7.5 billion. Microsoft is bundling Zenimax games with its Xbox Game Pass subscription service (which offers unlimited downloads from over 100 game libraries), Xbox Live, and Project xCloud with its new “Xbox Game Pass Ultimate” subscription plan for ડો 15 a month. Is.
Image source: micro .ft.
If that aggressive effort pays off, MicroSft’s gaming business, which grew its revenue by 2% to 11 11.6 billion and accounted for the top of last year, could be a major growth engine again in FY2021.
3. The PC market is still strong
Worldwide shipments of PCs grew 13% year-on-year in the third quarter, and the industry recorded strong growth in a decade, according to Canalis. That expansion was attributed to shifting to remote work and learning online learning during most of the COVID-19 crisis.
Rising PC sales will boost Microsoft’s Windows business, which last year boosted its 16% sales to Office and its Office and other products business, which accounted for 25% of its sales. It should offset the impact of the epidemic on its enterprise-oriented businesses, with the growth of two major industries, the strength of its cloud and gaming segments.
Its. Its premium valuation is reasonable
Wall Street expects Microft’s revenue and earnings to grow 10% and 12% this year, respectively. It has a steady growth rate, but some investors may reverse the stock’s forward P / E ratio compared to fl 33. This valuation is not cheap, and the yield on its next dividend will not hurt 1% more.
Nonetheless, I believe that its resilience during the Micro .ft epidemic, its ongoing growth in the commercial cloud business, and its upcoming gaming tail all justify it at a nominal premium. In short, investors who accumulate stocks today can sit on a decent profit next year.
