Microsoft (MSFT) is taking some huge risks with its $7.5 billion GitHub acquisition. Thus we have to ask if Microsoft will make money from GitHub.
Microsoft (NYSE: MSFT) is already a very profitable company. For example, Microsoft recorded a gross profit of $19.179 billion on revenues of $29.084 billion on 30 September 2018.
Additionally, Microsoft recorded an operating income of $9.55 billion and a net income of $8.24 billion for 3rd Quarter 2018. Thus, Microsoft is still a very effective money machine.
How the GitHub Acquisition could threaten Microsoft (MSFT)
The greatest risk to Microsoft from GitHub is the open source developer platform’s very public battle with the People’s Republic of China.
Notably, GitHub was the target of what Wired calls “the greatest distributed denial of service (DDoS) ever” in March 2018. Cybersecurity experts believe the Chinese government launched the DDOS attack.
In particular, the DDoS attack affected 100,000 memached servers connected to GitHub. To explain, a memached service is a private database catching system based in the cloud.
Many organizations use memached servers as an alternative to expensive hardware hosting. Hence, memached servers are a favorite target of hackers and cyber predators.
Will China’s War on GitHub Hurt Microsoft (MSFT)
Chinese security services attacked GitHub because they view the platform as a threat to their nation’s “Great Firewall.” To clarify, hackers and developers were using software from GitHub to evade China’s strict regime of internet censorship. The Great Firewall; or Golden Shield, is a popular nickname for the barrier separating the Chinese internet from the rest of cyberspace.
In retaliation, China attacked GitHub with its “Great Canon DDoS weapon,” author Elizabeth C. Economy alleges. For more details of the Great Canon assault on GitHub see Economy’s book The Third Revolution: Xi Jinping and the New Chinese State.
Therefore, protection from China and the Great Canon could be the real reason GitHub’s founders sold out to Microsoft. They realized GitHub needs a powerful patron to protect itself from China.
Will Microsoft (MSFT) Destroy GitHub?
Thus, Microsoft (MSFT) could make itself a target of Chinese cyberwar with its GitHub acquisition. The Chinese government could seize or shutdown Microsoft operation in China in retaliation for GitHub content.
We should commend Microsoft CEO Satya Narayana Nadella for taking the risk of buying GitHub. Nadella is putting his company at serious risk for Chinese cyberattacks by owning GitHub.
However, cynics will speculate if China is using Microsoft to censor GitHub. Under those circumstances, Microsoft could decrease GitHub’s value by destroying its independence.
GitHub brings a Lot of Value to Microsoft (MSFT)
GitHub brings a lot of value to Microsoft (MSFT) with its stable of 28 million developers.
An obvious use of GitHub will be to offer average consumers access to open sourced code, apps, hosting, software and services to the general public. To elaborate Microsoft can open an App Store type interface that offer GitHub products to everybody.
Moreover, Microsoft can now offer GitHub to its 1.2 billion Office users, and 120 million business users of Microsoft Office 365. To clarify, Microsoft could make money by charging a small fee on each GitHub transaction.
An obvious step for Microsoft is to add a GitHub App Store to 365 and every new copy of Windows. Beyond that Microsoft could add the GitHub App Store to the Xboxes and its Microsoft Azure cloud platform.
How Microsoft (MSFT) could Leverage GitHub to make more Money
In addition, Microsoft can offer next generation solutions such as Linux, the blockchain, cryptocurrencies, Ethereum, the internet of things (IoT), sidechains, and memached servers through GitHub. Another lucrative use of GitHub is joint ventures.
For example, Microsoft and Walmart (NYSE: WMT) are entering into a five-year strategic cloud partnership called 4.co. In 4.co engineers from both companies will develop internal apps utilizing Microsoft Azure and migrate Walmart operations the cloud, VentureBeat reports.
The 4.co team can leverage GitHub by using it to hire developers and make money by selling apps through GitHub. Moreover, the 4.co could greatly increase its brainpower and expertise with GitHub developers.
Planned 4.co projects that could leverage GitHub include internal chatbots, food-spoilage tracking, sensors, and improvements to Microsoft’s register-less ordering. The 4.co team will operate out of an office in Austin, Texas.
Thus GitHub is worth the risks for Microsoft. In particular, GitHub greatly increases Microsoft’s R&D capabilities without massive investments in new facilities or people.
How Much Money is Microsoft (MSFT) Making?
Microsoft can afford the risks from GitHub because it is making a lot of money.
For instance, Microsoft reported revenues of $29.084 billion on 30 September 2018. Uniquely, those revenues grew at a rate of 18.53% during 3rd Quarter 2018.
Particularly, Microsoft recorded an operating cash flow of $13.657 billion and a free cash flow of $10.055 billion on 30 September 2018. Thus Microsoft is a cash rich company that can easily afford the risks GitHub brings.
Impressively, Microsoft recorded $135.88 billion in cash and equivalents on September 30, 2018. Notably, that money was all cash and equivalents. They listed no short-term investments on Microsoft’s balance sheet on 30 September 2018.
How GitHub will help Microsoft (MSFT) battle Amazon Web Services
Hence, Microsoft has the resources take GitHub to the next level and conquer the cloud.
In particular, Microsoft is in an excellent position to compete with Amazon Web Services (AWS). Microsoft can offer memached servers, sidechains, and blockchain as alternatives to AWS for example.
Furthermore, Amazon’s (NASDAQ: AMZN) monopolistic tendencies and connections to the US military could drive customers to Microsoft. An independent web server built by Microsoft and sold through GitHub will be a huge moneymaker.
Microsoft (MSFT) is a Great Dividend Stock
Owning GitHub makes Microsoft (NYSE: MSFT) an intriguing growth stock, but it is also a great dividend stock.
For example, Microsoft has experienced 14 years of dividend growth. More importantly, Dividend.com gave Microsoft an annualized payout of $1.84, a dividend yield of 1.73%, and a payout ratio of 43.3% on 5 November 2018.
Microsoft scheduled a 46¢ dividend for 13 December 2018. That dividend will increase by 4¢ from the 42¢ paid on 13 September 2018.
In conclusion, I think Microsoft is a great dividend, income, and growth stock. If you need a dividend stock with growing income, share value, revenues, and dividends investigate Microsoft. Moreover, I believe Mr. Market undervalued Microsoft at $107.43 a share on 6 November 2018.