Microsoft (MSFT): It’s Working?

Posted on Apr 28 2015 - 9:39am by Sharpe Trade

For years, I have stated that new investors should tune into companies quarterly conference calls, presented to Shareholders.  The benefits are numerous and many.

It only generally takes one hour or so, every three months.

One can become familiar with the business with which one is invested.

One can listen to the board members of various corporations around the planet, as they attempt to manage businesses worth billions of dollars.  You’re not listening to some doofus and his thoughts on the economy who has no stake in issues facing the economy.  You’re not listening to my thoughts on the economy.  You are listening to board members discuss the very real issues they face as they manage corporations worth billions.

When I listen to the conference call of a company, I take some notes.  And therefore … I thought that to help out new folks as they navigate conference calls, I would start posting my notes, as I’ve taken them.  Perhaps, we can make this a continual feature here at Sharpe Trade with the stocks that we have mentioned in the Sharpe Income project.

Microsoft (MSFT) reported earnings on the 23rd of April, after which the stock’s price raced higher; almost 18% higher from the lows earlier in the month.  As I have mentioned previously here on Sharpe Trade, this is a stock that I use in the equities section of my own personal income accounts.  

Microsoft (MSFT) – 4 Hour Chart

04_27_15_Microsoft_MSFT_Rally

So yeah … … the 23rd was a nice day.

So what’s ‘the low-down’?

A few notes from my desk as I listened to the conference call

Earnings _ Microsoft MSFT Desktop Notes

Let me just rant a bit here for a second.  A pet peeve of mine was triggered in the call.  When a CEO, CFO or other board member starts to treat me like a customer, rather than an owner in the business.  Quit sales pitching me your services.  I’m not a customer.   I’m an owner.  Quit trying to sell me on divisions that are under 1% of revenue of the company.  It’s annoying as it insults my intelligence.

On the notes you will see:  Windows Products – Monetization – LOL – He’d love that.  That’s actually something that came up, that made me laugh a bit.  My brother works in I.T.  He has to first adopt much of the technology that we see a year or two later, and while he and I were chatting recently … I had to endure one of his rants recently regarding monetization on Windows products.  So when you see that on the notes?  That’s just something that made Dan chuckle a bit during the call.

Ok, now that I have that out of me.  

It’s an interesting turn Microsoft (MSFT) is taking.  

For years, Microsoft’s (MSFT) cash cow was Window’s licensing.  In other words, you “the consumer”, or you the “company” pay them money to get to use Microsoft Windows.  But it’s only licensed to you, and you have to pay to renew that license.  

It made them a fair bit of money over the years.  It was the mainstay of their entire business.   Something like 35% of their business came from Windows licensing.

Recently however, they are switching it up.  They announced that Windows 10, will be free.

At which point the market freeeeaked out.   Microsoft was going to be giving away for free, what it had made most of it’s money at for years.  Do you remember that seen from the original Iron Man movie where Tony Stark announces that his Defense Contracting business will no longer make weapons?  Yeah … it was sort of like that.

As they explained though, the thought is to get everyone under the Windows 10 umbrella, expand devices sold to consumers, and drive more towards the cloud.  And now, with this quarter, a very important metric was seen.  Yes, naturally Windows licensing was down.  But this was offset by growth in every other area of their business.  And the best summary of the call, was actually the last question during the Question and Answer section.

When we think of the Office platform, and all of these myriads of platforms and acquisitions such as branching into Minecraft, Skype, Android?  What is the benefit to Windows 10?  The core rationale is that all of these platforms will be integrated into Windows 10 itself.  Windows 10 will have and ‘be’ Skype, when you login.  This will tie you to the cloud, which leads to their earlier point that everything is driving towards mining that data, advanced data analytics and Machine Learning (think IBM) that is again, tied back to that cloud interaction.

If I was forced to put this quarter into one sentence?

Briefly, when we look at growth in other segments of business for Microsoft (MSFT) … it seems the plan is working … 

1 Comment so far. Feel free to join this conversation.

  1. Christopher May 4, 2015 at 12:41 am - Reply

    That YouTube clip was hilarious in conjunction with this article.

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