Microsoft stock price is showing signs of life
Microsoft’s stock price hit a series of 14-year highs this month, nearly doubling since the start of 2013.
Seattle Times technology reporter
It’s too soon to tell whether new Microsoft Chief Executive Satya Nadella will succeed in his aim to create a more nimble company that can move beyond its dependence on a stagnant PC market.
Investors, though, are already voting with their cash.
Microsoft’s stock price hit a series of 14-year highs this month, nearly doubling since the start of last year.
There’s a stack of reasons why the Redmond company’s Wall Street reflection regained its mojo, analysts and investors say.
• Declines in PC sales have slowed, steadying the prospects for Microsoft flagships Windows and Office software.
• Microsoft has aggressively cut costs — and 18,000 jobs — after its purchase of Nokia’s handset business.
• The company has also deployed its giant cash pile to help make it an attractive investment, spending $11 billion in its last two fiscal years to purchase its own shares, and another $16.9 billion in dividends to investors.
• Perhaps most important, Nadella has succeeded in getting people to buy into his vision of a company that moves more quickly in response to the needs of businesses and individual laptop or smartphone users.
“Everybody at Microsoft has gotten an extra spring in their step,” Jeff Teper, a vice president who leads the corporate-strategy team at Microsoft, said at a technology investors’ conference in California earlier this month. “You see it in the product launches, you see it in the stock price, you see it in a tone we get from customers and partners.”
Investors will have an opportunity to gauge that tone on Wednesday at Microsoft’s annual shareholders’ meeting at the Meydenbauer Center in Bellevue.
The company has surprised some longtime observers with its newfound flexibility, offering versions of its Office suite for free on phones made by competitors and allowing outside developers to tinker with some of the code behind its main software developer toolbox.
Microsoft shares topped out just shy of $50 earlier this month, and on Friday stood at $47.81 a share, up 28 percent on the year. That’s a sharp turnaround for a company that spent years under the shadow cast by its reputation in Silicon Valley as bureaucracy-laden and slow to innovate.
Microsoft’s shares shuffled between $20 and $30 a share for most of the decade after the dot-com boom went bust in 2000.
“They were big, ugly tech,” said Bernie Williams, who leads a team that manages investments for wealthy clients at USAA in San Antonio. “They weren’t growing very fast and they weren’t sexy.”
Despite some early innovation, the company largely whiffed on smartphones and tablets, the two huge consumer-electronics trends of the past several years. Apple, fresh off its hit with the iPad, in 2010 hurdled above Microsoft as the world’s most-valuable technology firm.
Microsoft’s recent rebound comes amid hopes the company may finally have arrived on time for the next big shift: cloud computing.
Businesses large and small are increasingly depending on servers accessed online for their computing power. Microsoft is spending billions to build data centers and other infrastructure in the hopes that businesses will chooe Azure, its 4-year-old cloud product.
The investment is starting to pay off, with Microsoft’s business-focused cloud group logging triple-digit revenue growth, albeit from what was a very small starting point by Microsoft standards.
Still, for many Microsoft watchers it’s tough to imagine the company’s stock climbing much more from here anytime soon.
“What I worry about is they’d have to put up tremendous results to [rise] above what’s already built into the stock price,” said Karl Keirstead, an analyst with Deutsche Bank.
Others argue that even if Microsoft is making the right moves in trying to claw its way into cloud computing and smartphones, in practice the company remains firmly tethered to a lackluster PC market.
“The core of Microsoft is relatively unchanged,” John DiFucci, an analyst with investment bank Jefferies, said in a report to clients this month. DiFucci says 84 percent of Microsoft’s profits come from selling Windows, Office and other predominantly PC-related lines of business.
The concern is that should consumers continue their habit of buying tablets and smartphones not made by Microsoft or powered by its software, the company may see its dominance in the workplace start to erode.
Microsoft, DiFucci says, is an “exceptionally successful, dominant company that is facing unprecedented challenges.”
For now, investors seem comfortable with Microsoft’s still-healthy Windows, Office and IT infrastructure cash cows.
Signs of success in the cloud and steady spending by business clients have helped Microsoft post profits higher than Wall Street analysts’ expectations in four of the past five quarters. That’s quieted some of the rumblings from Wall Street that the company should shed marginally profitable or money-losing units like Xbox or its Surface tablet. It’s also given Nadella some breathing room as he’s settled in to the CEO role.
Other business-focused technology giants haven’t fared so well. IBM last month abandoned its profit target after reporting a steep drop in earnings. Oracle and Germany’s SAP have struggled to meet shareholders’ expectations.
Microsoft is “just becoming more innovative,” USAA’s Williams said. He said he has added to his clients’ holdings of Microsoft in the past few years, but pulled back a bit as the stock surged. That doesn’t mean he’s downbeat on the company.
“They’re probably a little bit safer than a lot of other tech names,” Williams said. “But I don’t think you’re going to get that doubling again.”
Matt Day: 206-464-2420 or firstname.lastname@example.org.