Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Microsoft the best Value in Tech?

I consider Microsoft the best value in tech because it has a low stock price but generates vast amounts of cash.

For instance, Microsoft (NASDAQ: MSFT) had $131.618 billion in cash and equivalents on 31 March 2019. In addition, Microsoft records an operating cash flow of $13.528 billion and a free cash flow of $10.955 billion for 31 March 2019. However, Microsoft shares were trading at $125.51 on 8 May 2019.

In contrast, Apple (NASDAQ: AMZN) had $80.092 billion in cash and short-term investments on 30 March 2019. Conversely, Amazon records an investing cash flow of $13.348 billion, an operating cash flow of $11.155 billion, and a free cash flow of $8.792 billion on 20 March 2019. Notably, Apple shares were trading at $202.86 on 8 May 2019.

Consequently, Microsoft is accumulating more cash than Apple but its shares are worth around $90 less. Thus, Microsoft is a value investment when you compare it to Apple.

Is Microsoft a Good Dividend Investment?

Moreover, Microsoft is a respectable dividend investment with a 46₵ payout scheduled for 13 June 2019. In addition, that dividend grew by 4₵ in 2018, rising from 42₵ on 13 June 2018.

In addition, Microsoft offered investors a dividend yield of 1.46%, an annualized payout of $1.84, and a payout ratio of 43.3% on 8 May 2019. Importantly, Microsoft has paid a dividend for straight years, reports.

On the other hand, Apple’s dividend is bigger than Microsoft. In fact, Apple’s dividend will grow by 4₵ to 77₵ on 16 May 2019. Consequently, Apple investors received a 1.52% dividend yield, an annualized payout of $3.08, and a payout ratio of 25.2% on 8 May 2019. Apple has been paying a dividend for the last six years.

I think Microsoft’s lower price more than makes up for the lower dividend yield. Therefore, if you are looking for a bargain stock in tech check out Microsoft.

How Much Money is Microsoft Making

Microsoft is the best bargain in tech because it is making a lot of money. For instance, Microsoft reports a $20.401 billion gross profit and revenues of $30.573 billion for 2nd Quarter 2019.

Plus, Microsoft had an operating income of $10.341 billion and a net income of $8.809 billion for 2nd  quarter 2019. Best of all, Microsoft’s revenue grew at a rate of 13.99% during 2nd Quarter 2019, Stockrow calculates.

Meanwhile, Stockrow estimates Apple had a negative revenue growth rate of -5.11% in 1st Quarter 2019. Thus, Microsoft is now a better growth stock than Apple and it is cheaper.

For the record, Apple records a gross profit of $21.821 billion on revenues of $58.015 billion for 1st Quarter 2019. Thus, Microsoft makes almost as much money as Apple does with lower revenues, and lower expenses.

Why is Microsoft so Profitable?

Microsoft is so profitable because the company owns several money making platforms.

For instance, revenues for Microsoft’s Intelligent Cloud grew by 20% to $9.4 billion in 2nd Quarter 2019, VentureBeat estimates. Meanwhile, revenues for Enterprise Services grew by 6% and revenues for the Azure Cloud Services Platform grew by 76%.

Plus Personal computing grew by 7% to $13 billion. In particular, Windows Commerical grew by 13% and Search Advertising revenues grew by 14%. Meanwhile, Surface revenues grew by 39% and gaming revenues rose by 8%. Not surprisingly, the Xbox platform drives the gaming revenues.

Is LinkedIn Making Money?

On the other hand, Microsoft reports $5.3 billion in LinkedIn revenues 2019, Business of Apps calculates. Microsoft claims it is monetizing LinkedIn but does not say how.

However, LinkedIn brings a huge platform to Microsoft. Notably, Business of Apps reports LinkedIn’s current assets include:

  • 154 million users in the United States
  • Over 30 million corporate users.
  • 590 million users worldwide
  • 25% of US adults have LinkedIn
  • 11 million jobs listed on LinkedIn
  • 100 million LinkedIn downloads.
  • 57% of LinkedIn traffic comes from mobile devices.
  • 130,000 articles are published on LinkedIn each month.
  • Users in over 200 countries.

Is GitHub Microsoft’s Most Valuable Asset?

Thus Microsoft is a major player in personal computers, software, cloud computing and video games. However, I think GitHub could be Microsoft’s most valuable asset.

To explain, GitHub’s “Octoverse” is a decentralized global ecosystem for developers, organizations, and customers. In detail the Octoverse gives developers, customers, and organizations access to over 96 million repositories full of software, apps, and blockchain technology.

Impressively, GitHub claims, the Octoverse connects over 31 million developers with 2.1 million organizations. In addition, GitHub received 200 million requests for software in 2018. Plus, GitHub calculates developers contributed over 1.1 billion solutions to the Octoverse in 2018.

GitHub’s Explosive Growth

Consequently, Microsoft increased its “workforce” of engineers and developers by 31 million by buying GitHub. In addition, Microsoft connected with 2.1 million potential business customers by acquiring GitHub.

Moreover, the Octoverse is growing at an incredible rate. For instance, GitHub claims the number of repositories it hosts grew by 40% in 2018. In addition, management claims more people joined GitHub in 2018 than in the platform’s first six years of operations.

Furthermore, they estimate the number of GitHub pull requests grew by over 33% in 2018. Those requests grew because the number of organizations using GitHub grew by 40% in 2018.

The Future of GitHub

Ultimately, GitHub represents a powerful business model that Microsoft can utilize in other markets.

For instance, a GitHub for video-game developers, a GitHub for financial services, and GitHubs for music and video. To explain, game developers could market their games through a video-game GitHub Microsoft connects to the Xbox platform.

Microsoft could offer a GitHub for videos where producers post movies or TV shows. Hence, Microsoft could compete with Alphabet’s (NASDAQ: GOOG) YouTube and Netflix (NASDAQ: NFLX).

Could GitHub be Bigger than the App Store?

Under these circumstances, Microsoft could place direct links to GitHub in Slate, Windows, Microsoft Office, Xbox, and other products. Therefore, Microsoft could develop GitHub into a bigger and more widely used version of the App store.

In fact, I think GitHub could be more lucrative than Apple’s App Store, because users can access it from a wide variety of devices. For example, Microsoft could place GitHub apps in Alphabet’s (NASDAQ: GOOGL) Android Play to reach Android users.

Thus, GitHub could reach 74.85% of the world’s smartphone users. To clarify, Statcounter estimates 74.85% of the world’s smartphones run on Android. In contrast, just 22.94% of mobile devices worldwide run on iOS, Stacounter calculates.

In the final analysis, Microsoft is a great value investment with tremendous growth potential. Thus, I consider Microsoft the best bargain in tech stocks in the current market.