For most investors, how much a stock’s price changes over time is an important driver. Price performance not only affects your portfolio, it also helps you compare investment results across sectors and industries.
Another factor that can drive investment is the fear of missing out (FOMO). This especially applies to tech giants and popular consumer-facing stocks.
What if you invested in Microsoft (MSFT) ten years ago? It may not be easy to hold on to MSFT, but if you did, how much would your investment be worth today?
Microsoft business in depth
With that in mind, let’s take a look at Microsoft’s key business drivers.
Microsoft Corporation is one of the world’s largest broad-based technology providers. The company dominates the PC software market, with a market share of over 73% in desktop operating systems.
The company’s Microsoft 365 suite of applications is one of the most popular productivity software in the world. It is also one of the prominent public cloud providers that offers various Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) solutions at scale.
Headquartered in Redmond, Wash., Microsoft’s products include operating systems, cross-device productivity applications, server applications, business solutions applications, desktop and server management tools, software development tools and video games. Its software solutions and hardware devices play an important role in the development of the Metaverse.
The company designs and sells personal computers, tablets, gaming and entertainment consoles, other smart devices, and related accessories. Through Azure, it provides cloud-based solutions that provide customers with software, services, platforms and content.
Microsoft reported fiscal 2023 revenue of $211.9 billion. The company reports its business into three segments: Productivity and Business Processes, Intelligent Cloud and More Personal Computing.
Productivity and business processes accounted for 32.6% of fiscal 2023 revenue. The segment provides productivity and collaboration tools and services, including Office 365, Dynamics Business Solutions, Teams, Relationship Sales Solutions, Power Platform and LinkedIn.
Smart cloud, including Azure cloud services, contributed 41.4% of revenue in fiscal 2023.
In January 2022, the company signed a final agreement to acquire Activision Blizzard. This acquisition will accelerate the growth of Microsoft’s gaming business in mobile, PC, console and cloud gaming. Microsoft and Activision Blizzard have mutually agreed to extend the merger agreement until October 18, 2023, to allow more time to resolve remaining regulatory issues.
More personal computing accounted for 25.8% of fiscal 2023 revenue. This segment mainly includes Windows, games (Xbox hardware and Xbox software and services), devices (Surface, PC accessories and other smart devices) and search (Bing and Microsoft Advertising) businesses.
bottom line
Putting together a successful portfolio requires a combination of research, patience and a little risk. In the case of Microsoft, if you bought shares a decade ago, you’d probably feel very good about your investment today.
According to our calculations, a $1,000 investment made in January 2014 would be worth $10,826.55 as of 19 January 2024, or a return of 982.66%, excluding dividends but including price increases.
In comparison, the S&P 500 Index rose 160.02% and gold rose 58.17% during the same period.
Analysts expect more upside for Microsoft Financial Services.
Microsoft is relying on strong growth in smart cloud and productivity and business processes. The growth of Azure and other cloud services has driven growth in smart cloud revenue. Productivity and business process revenue continue to grow due to widespread adoption of Office 365 business solutions. Revenue growth was driven by continued growth momentum in products for small and medium-sized businesses and frontline workers, as well as revenue per user growth. We expect fiscal 2024 net sales to increase 12.7% compared to fiscal 2023. However, more personal computing revenue was affected by continued weakness in the Windows and device businesses. Solid performance from talent solutions helped LinkedIn’s revenue. However, declining gaming revenue has been a headwind. Amid fierce competition in the cloud space, rising spending on Azure enhancements remains a concern.
The stock has gained 5.44% in the past four weeks, and profit expectations have not declined over the past two months, while profit expectations for fiscal 2023 are higher. Market consensus expectations have also been revised higher.
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