Market Mad House

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


Why is Microsoft’s Revenue Growing?

Tech forecasters may have to rewrite some of their scenarios. A company they have written off as a dinosaur; Microsoft (NASDAQ: MSFT), is experiencing noticeable revenue and income growth.

Its quarterly revenues grew by $4.360 billion or 11.97% during 4th Quarter 2017, Stockrow data indicates. Microsoft took in $24.538 billion in revenue during 3rd Quarter 2017, and $28.918 billion during 4th Quarter 2017.

That revenue growth is translating into more quarterly operating income, $8.679 billion up from $7.708 billion in 3rd Quarter 2017, and $7.905 billion in 4th Quarter 2016. Although net income equaled a loss of -$6.302 billion for 4th Quarter 2017 as opposed to a $6.576 billion operating income for 3rd Quarter 2017.

Microsoft is Still Capable of Making a lot of Money

Despite the loss, Microsoft is still capable of making a lot of money, its quarterly gross profit for 4th Quarter 2017 was $17.854 billion. That was more than $2 billion the $15.925 billion quarterly gross profit from 4th Quarter 2016.

There was also a free cash flow of $5.289 billion for 4th Quarter 2017, down from $10.308 billion in 3rd Quarter but still respectable. If that was not enough; Microsoft reported an operating cash flow of $7.875 billion for 4th Quarter 2017, down from $12.440 billion for 3rd Quarter but still very good.

More importantly, Microsoft has accumulated an incredible amount of float including; $142.780 billion in cash and equivalents on December 31, 2017. That cash composed most of Microsoft’s $167.633 billion in assets.

Microsoft is a Value Investment

This more than anything else makes Microsoft a value investment, it also raises serious doubt about the concept that social media is the future of digital.

Microsoft’s revenues indicate that somebody out there is still buying a lot of software licenses. They also show us that people are still using a lot of PCs and traditional software solutions such as Windows Office.

Much of Microsoft’s value is driven by solutions like Excel and Word that are the standard tools in many industries. Almost all writing; even on Macs, is still done on Word, and many accountants and finance types swear by Excel. From personal experience, I know that it is almost impossible to be a freelance writer without Word.

Another reason why Microsoft is making money is that one a lot of people will never admit to – the high quality of its solutions. The Windows 10 I use is one of the most stable operating systems I have had access to.

Windows 10 actually works well with a lot of Linux-based products; including Google Chrome, and with some pretty complex next-generation technology. I was able to get a number of blockchain based solutions to work with it.

Standard Windows 10 will also provide better security than most of the antivirus and stand-alone security solutions on the market. Vast numbers of people buy Windows and use it because the product actually works. The same can be said of most Microsoft solutions.

A Fascinating Threat to Microsoft ReactOS

Despite the quality, there are some serious threats to Windows out there. They include a wide variety of free operating systems including the seemingly unlimited number of Linux variants.

A good example of the threats that Microsoft has to contend with in today’s world is something called ReactOS. ReactOS is a free operating system looks Windows and claims to offer users the ability to run a wide variety of Microsoft solutions. I was not able to figure what ReactOS runs on but its developers claim it is not Linux.

ReactOS is a free-open sourced operating system that lets people run Window applications and it is possible to download a boot CD of it online. The threat stuff like ReactOS poses to Microsoft is obvious people will be able to operate solutions without paying for them.

The greatest danger for Microsoft is a world where such solutions can be readily accessed at the touch of an app. Particular dangers include blockchain-based solutions that deliver artificial intelligence straight to people’s phones and computers.

The Blockchain Menace

A tremendous danger to Excel would be an “accountant in a box” AI solution delivered right through the blockchain.

Such a solution might be feasible right now, at least one company Aitheon seems to be working on it. Another menace is digibots or digital robots that can perform a wide variety of accounting or business functions through the blockchain. Aitheon claims to be working on digibots for functions like payroll and accounts receivable.

Some blockchain solutions; particularly Ethereum decentralized applications (DApps), are a grave threat to Microsoft because their capabilities might exceed anything present day Microsoft solutions are capable of. An example would be an AI editor that not only proofreads your documents but actually rewrites them according to any style you want.

Another threat to Excel; would be a money-management program that actively manages your accounts, cuts your payroll, pays your bills, balances your checking account, and invests your money for your company. Such a Chief Financial Officer (CFO) in a box might be possible with present-day technology.

Microsoft faces a real struggle for survival in the near future but I can think it can thrive because of its high-quality personnel and technology and ability to generate cash. Even with all the potential menaces out there, Microsoft is still a value investment. If you like cash you should have MSFT in portfolio, because it is still a great value investment.