Microsoft is well positioned for long term growth.
The tech giant posted excellent results despite several corona virus related challenges. Ont he other hand, its stock prices remain at record value.
Over the long run the company is well positioned to sustained growth based on it´s well established cloud computing business.
What would a money smart investor do? Continue reading to find out.
Short term results, long term growth
Despite the good aggregated results, the corona virus pandemic posed several challenges for the company.
Linkedin revenue growth YoY was 50% lower than in the previous 12 months period and online advertising revenue dropped 17% due to lower advertising rates.
Looking at the long term, Microsoft 2020 fiscal year was impressive. Overall revenue increased to $143 billion, an almost 14% improvement year on year.
Cloud computing, the new golden market
Lead by Microsoft Azure and Office 365, earnings from cloud computing are the new shining star for the company.
During the most recent earnings call CEO Satya Nadella pointed out it´s cloud computing revenue increased from $38 billion in 2019, to $50 billion this year.
A recent studies forecast that the revenue from the cloud market will grow at a compound annual rate of nearly 15% by 2027.
What the numbers say?
With a strong balance sheet, the company seems immune to long term financial hardship in the long term.
Its current short term cash investments reached the mark of $70 billion, almost 50% more than it´s year to date revenue.
As a results of its revenue growth and financial performance, market currently values the stock at a staggering 36 price to earnings ratio.
A strong track record
Microsoft was the most valuable company in the world twenty years ago. The company managed to reinvent itself several times to remain at the top for so long.
Microsoft is 45 years old. Born as a pioneer of the personal computing era, the company is today a cloud-computing leader.
It now owns LinkedIn, Skype and GitHub, on top its Windows operating system and the Xbox gaming and Office 365 businesses.
New markets new opportunities
Today the company has asserted itself as a leader in cloud-computing services, artificial intelligence and productivity tools, competing toe-to-toe with much younger companies like Google and Amazon.
With more people isolated at home during quarantine, Xbox console and services represented Microsoft highest growth activity during the quarter.
As a leading player in the cloud computing market, Microsoft should at least match the expected industry annual growth rate of 15% by 2027.
Should you buy it or not?
Microsoft stock prices are up 43% over the last 12 months and only 6% below it´s all time highs. Recent double digit revenue and margins growth tend to became ever harder to achieve in the long term.
Considering it´s already super elevated price to earning ratio, it is hard to believe the stock performance will be maintained over the long run.
It´s massive scale will limit the company upside potential on the long run, and therefore prudent investors should stay in the sideline.
The secret to make money in the stock market
There is a vast number of financial products to choose from and little guidance on how to do so.
If we are to take charge of our economic future, we must have the proper monetary self-awareness to do so.
This is why choosing a financial literacy quiz is so essential.