Is Microsoft Corporation (NASDAQ: MSFT) A Good Investment at Current Prices?
Microsoft Corporation (NASDAQ: MSFT) stock has rallied by about 10% in the two months after the company reported its Q1 2018 results. The company reported a 12% increase in year-on-year revenues, which translates to a $2.6 billion increase in its first quarter revenues.
Microsoft reported double-digit revenue growth in Q1 2018.
The company’s stock has rallied higher since that time.
Microsoft is growing at an admirable pace for a mature company.
Despite the fact that Microsoft has existed since the 1970s and should have passed the rapid growth stage years back, the company continues to develop innovative products that help it grow in double digits. Although some analysts opine that the company is currently overvalued given that it is trading at a P/E ratio of 28.92, but given its recent revenue beat, it is highly likely that the company still has significant upside potential.
A significant portion of the revenue growth reported by Microsoft came from its Productivity and Business process segment, which generated $1.8 billion of the additional revenue. The P&BP segment is largely driven by LinkedIn talent solutions, which allows companies to recruit new employees.
The Microsoft Azure cloud platform also registered significant revenue growth amounting to $825 million in the same quarter, which contributed to the intelligent cloud revenue. This was a major achievement for Microsoft given the stiff competition in the cloud services industry from companies such as Amazon.com, Inc. (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOGL) among other companies.
The company’s Office 365 commercial application also registered notable growth by generating a $500 million increase in revenue. However, earnings from the company’s personal computing division remain flat, which is a clear indicator that although Microsoft will keep selling PC software and devices, they are unlikely to drive the company’s future growth.
The current shift towards cloud-based software applications favors Microsoft as evidenced by the growth of its Azure cloud platform, and the company’s shift in focus to a SaaS model as opposed to the licensing model it used in the past.
Microsoft is well positioned to benefit from current shift in consumer and business needs by developing innovative products that solve business problems and meet consumer needs. It is rare for a mature company such as MSFT to report double-digit revenue growth, which makes it clear that the company is doing something right.
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