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'''Team'''
'''Team'''
'''Chief Executive Officer: Satya Nadella'''
[[File:Satya.jpg|left|thumb|170x170px]]
'''Executive Vice President/Chief Financial Officer: Amy Hood'''
[[File:Amy-Hood-Headshot.jpg|left|thumb|225x225px]]
Executive Vice President/Chief Commercial Officer: Judson Althoff
Executive Vice President/Chief Human Resources Officer: Kathleen Hogan
Executive Vice President/Chief Marketing Officer (Marketing and Consumer Business): Chris Capossela
Executive Vice President (Business Development, Strategy and Ventures): Christopher Young
President/Vice Chair: Brad Smith
== Market ==
'''Industry Chain Analysis'''
The technology industry's value chain involves hardware manufacturers, software developers, cloud service providers, and other technology-related businesses. Microsoft's position spans multiple segments, but its significant revenue drivers include cloud computing and software services. In the cloud sector, Microsoft competes with companies like Amazon Web Services (AWS) and Google Cloud. In software, it faces competition from companies like Oracle, SAP, and Salesforce. Understanding the competitive landscape and profitability of these segments is essential in evaluating Microsoft's growth potential.
'''Industry's Key Drivers'''
a. Technological Advancements: The industry's foundation lies in pushing the boundaries of innovation. Advancements in hardware, software, and emerging technologies like artificial intelligence, blockchain, and quantum computing fuel the growth of the industry.
b. Digital Transformation: Businesses worldwide are undergoing digital transformation to remain competitive. This transformation demands technology products and services, ranging from cloud computing to automation tools, which are provided by companies like Microsoft.
c. Increasing Connectivity: The rise of the internet and the growing number of connected devices through IoT drive the demand for tech solutions to manage and analyze the vast amounts of data generated.
d. Evolving Consumer Behavior: Consumer preferences have shifted towards digital experiences, leading to increased demand for software applications, online services, and entertainment platforms.
'''Industry's Trend'''
Investment in most tech trends tightened year over year, but the potential for future growth remains high, as further indicated by the recent rebound in tech valuations. Indeed, absolute investments remained strong in 2022, at more than $1 trillion combined, indicating great faith in the value potential of these trends. Driven by the growing demand for digital solutions, cloud services, and AI-driven applications, the tech industry is likely to continue its growth trajectory. Microsoft's strong focus on cloud computing, along with its strategic partnerships and acquisitions, puts it in a good position to capitalize on these trends. Also, as some technologies become more profitable, they can often scale further with lower marginal investment.
== Financials<ref>https://www.microsoft.com/en-us/Investor/annual-reports.aspx</ref> ==
=== Key Stats ===
{| class="wikitable"
!'''Particulars'''
!'''2020'''
!'''2021'''
!'''2022'''
|-
|'''Total Revenue'''
| '''           1,43,015'''
| '''           1,68,088'''
| '''           1,98,270'''
|-
| Growth Over Prior Year
|13.65%
|17.53%
|17.96%
|-
|'''Gross Profit'''
| '''              96,937'''
| '''           1,15,856'''
| '''           1,35,620'''
|-
| Margin %
|67.78%
|68.93%
|68.40%
|-
|'''EBITDA'''
| '''              65,259'''
| '''              80,816'''
| '''              97,983'''
|-
| Margin %
|45.63%
|48.08%
|49.42%
|-
|'''EBIT'''
| '''              52,959'''
| '''              69,916'''
| '''              83,383'''
|-
| Margin %
|37.03%
|41.59%
|42.06%
|-
|'''Earnings from Cont. Ops.'''
| '''              44,281'''
| '''              61,271'''
| '''              72,738'''
|-
| Margin %
|30.96%
|36.45%
|36.69%
|-
|'''Net Income'''
| '''              44,281'''
| '''              61,271'''
| '''              72,738'''
|-
| Margin %
|30.96%
|36.45%
|36.69%
|-
|'''Diluted EPS Excl. Extra Items'''
|'''5.76'''
|'''8.05'''
|'''9.65'''
|-
| Growth Over Prior Year
|13.83%
|39.76%
|19.88%
|}
=== Income Statement ===
{| class="wikitable"
!'''Particulars'''
!'''2020'''
!'''2021'''
!'''2022'''
|-
|Revenue
|                       1,43,015
|                       1,68,088
|                       1,98,270
|-
|Other Revenue
| -
| -
| -
|-
| ''' Total Revenue'''
| '''                       1,43,015'''
| '''                       1,68,088'''
| '''                       1,98,270'''
|-
|Cost Of Goods Sold
|                          46,078
|                          52,232
|                          62,650
|-
| ''' Gross Profit'''
| '''                          96,937'''
| '''                       1,15,856'''
| '''                       1,35,620'''
|-
|Selling General & Admin Exp.
|                          24,709
|                          25,224
|                          27,725
|-
|R & D Exp.
|                          19,269
|                          20,716
|                          24,512
|-
| Other Operating Exp., Total
|                          43,978
|                          45,940
|                          52,237
|-
| ''' Operating Income'''
| '''                          52,959'''
| '''                          69,916'''
| '''                          83,383'''
|-
| Net Interest Exp.
|                                 89
|                             (199)
|                                 47
|-
| ''' EBT Incl. Unusual Items'''
| '''                          53,036'''
| '''                          71,102'''
| '''                          83,716'''
|-
|Income Tax Expense
|                            8,755
|                            9,831
|                          10,978
|-
| '''<u> Net Income</u>'''
| '''<u>                          44,281</u>'''
| '''<u>                          61,271</u>'''
| '''<u>                          72,738</u>'''
|-
|
|
|
|
|-
!Per Share Items
!2020
!2021
!2022
|-
|'''Basic EPS'''
|'''5.82'''
|'''8.12'''
|'''9.7'''
|-
|Weighted Avg. Basic Shares Out.
|7610
|7547
|7496
|-
|
|
|
|
|-
|'''Diluted EPS'''
|'''5.76'''
|'''8.05'''
|'''9.65'''
|-
|Weighted Avg. Diluted Shares Out.
|7683
|7608
|7540
|}
=== Balance Sheet ===
{| class="wikitable"
!Particulars
!2020
!2021
!2022
|-
|'''ASSETS'''
|
|
|
|-
|Cash And Equivalents
|                 13,576
|                 14,224
|                 13,931
|-
|Short Term Investments
|              1,22,916
|              1,16,032
|                 90,818
|-
| ''' Total Cash & ST Investments'''
| '''              1,36,492'''
| '''              1,30,256'''
| '''              1,04,749'''
|-
|
|
|
|
|-
|Accounts Receivable
|                 32,011
|                 38,043
|                 44,261
|-
|Other Receivables
| -
| -
| -
|-
| ''' Total Receivables'''
| '''                 32,011'''
| '''                 38,043'''
| '''                 44,261'''
|-
|
|
|
|
|-
|Inventory
|                   1,895
|                   2,636
|                   3,742
|-
|Other Current Assets
|                 11,517
|                 13,471
|                 16,932
|-
| ''' Total Current Assets'''
| '''              1,81,915'''
| '''              1,84,406'''
| '''              1,69,684'''
|-
|
|
|
|
|-
|Gross Property, Plant & Equipment
|                 96,101
|              1,22,154
|              1,47,206
|-
|Accumulated Depreciation
|               (43,197)
|               (51,351)
|               (59,660)
|-
| ''' Net Property, Plant & Equipment'''
| '''                 52,904'''
| '''                 70,803'''
| '''                 87,546'''
|-
|
|
|
|
|-
|Long-term Investments
|                   2,965
|                   5,984
|                   6,891
|-
|Goodwill
|                 43,351
|                 49,711
|                 67,524
|-
|Other Intangibles
|                   7,038
|                   7,800
|                 11,298
|-
|Accounts Receivable Long-Term
|                   2,700
|                   3,400
|                   3,800
|-
|Deferred Tax Assets, LT
|                   6,405
|                   7,181
|                 13,515
|-
|Other Long-Term Assets
|                   4,033
|                   4,494
|                   4,582
|-
|'''<u>Total Assets</u>'''
| '''<u>              3,01,311</u>'''
| '''<u>              3,33,779</u>'''
| '''<u>              3,64,840</u>'''
|-
|
|
|
|
|-
|'''LIABILITIES'''
|
|
|
|-
|Accounts Payable
|                 12,530
|                 15,163
|                 19,000
|-
|Accrued Exp.
|                   7,874
|                 10,057
|                 10,661
|-
|Curr. Port. of LT Debt
|                   3,749
|                   8,072
|                   2,749
|-
|Curr. Port. of Leases
|                   2,156
|                   2,753
|                   3,288
|-
|Curr. Income Taxes Payable
|                   2,130
|                   2,174
|                   4,067
|-
|Unearned Revenue, Current
|                 36,000
|                 41,525
|                 45,538
|-
|Other Current Liabilities
|                   7,871
|                   8,913
|                   9,779
|-
| ''' Total Current Liabilities'''
| '''                 72,310'''
| '''                 88,657'''
| '''                 95,082'''
|-
|
|
|
|
|-
|Long-Term Debt
|                 59,578
|                 50,074
|                 47,032
|-
|Long-Term Leases
|                 16,627
|                 21,379
|                 25,331
|-
|Unearned Revenue, Non-Current
|                   3,180
|                   2,616
|                   2,870
|-
|Def. Tax Liability, Non-Curr.
|                      204
|                      198
|                      230
|-
|Other Non-Current Liabilities
|                 31,108
|                 28,867
|                 27,753
|-
|'''Total Liabilities'''
| '''              1,83,007'''
| '''              1,91,791'''
| '''              1,98,298'''
|-
|
|
|
|
|-
|Common Stock
|                 80,552
|                 83,111
|                 86,939
|-
|Additional Paid In Capital
| -
| -
| -
|-
|Retained Earnings
|                 34,566
|                 57,055
|                 84,281
|-
|Treasury Stock
| -
| -
| -
|-
|Comprehensive Inc. and Other
|                   3,186
|                   1,822
|                 (4,678)
|-
| ''' Total Common Equity'''
| '''              1,18,304'''
| '''              1,41,988'''
| '''              1,66,542'''
|-
|
|
|
|
|-
|'''Total Equity'''
| '''              1,18,304'''
| '''              1,41,988'''
| '''              1,66,542'''
|-
|
|
|
|
|-
|'''<u>Total Liabilities And Equity</u>'''
| '''<u>              3,01,311</u>'''
| '''<u>              3,33,779</u>'''
| '''<u>              3,64,840</u>'''
|}
=== Cash Flow Statement ===
{| class="wikitable"
!Particulars
!2020
!2021
!2022
|-
|Net Income
|                 44,281
|                 61,271
|                 72,738
|-
|Depreciation & Amort., Total
|                 12,300
|                 10,900
|                 14,600
|-
|(Gain) Loss On Sale Of Invest.
|                    (219)
|                 (1,249)
|                    (409)
|-
|Stock-Based Compensation
|                   5,289
|                   6,118
|                   7,502
|-
|Other Operating Activities
|                      507
|                      636
|                 (5,842)
|-
|Change in Acc. Receivable
|                 (2,577)
|                 (6,481)
|                 (6,834)
|-
|Change In Inventories
|                      168
|                    (737)
|                 (1,123)
|-
|Change in Acc. Payable
|                   3,018
|                   2,798
|                   2,943
|-
|Change in Unearned Rev.
|                   2,212
|                   4,633
|                   5,109
|-
|Change in Inc. Taxes
|                 (3,631)
|                 (2,309)
|                      696
|-
|Change in Other Net Operating Assets
|                    (673)
|                   1,160
|                    (345)
|-
| '''<u> Cash from Ops.</u>'''
| '''<u>                 60,675</u>'''
| '''<u>                 76,740</u>'''
| '''<u>                 89,035</u>'''
|-
|
|
|
|
|-
|Capital Expenditure
|               (15,441)
|               (20,622)
|               (23,886)
|-
|Cash Acquisitions
|                 (2,521)
|                 (8,909)
|               (22,038)
|-
|Divestitures
| -
| -
| -
|-
|Invest. in Marketable & Equity Securt.
|                   6,980
|                   2,876
|                 18,438
|-
|Other Investing Activities
|                 (1,241)
|                    (922)
|                 (2,825)
|-
| '''<u> Cash from Investing</u>'''
| '''<u>               (12,223)</u>'''
| '''<u>               (27,577)</u>'''
| '''<u>               (30,311)</u>'''
|-
|
|
|
|
|-
|Total Debt Repaid
|                 (5,518)
|                 (3,750)
|                 (9,023)
|-
|Issuance of Common Stock
|                   1,343
|                   1,693
|                   1,841
|-
|Repurchase of Common Stock
|               (22,968)
|               (27,385)
|               (32,696)
|-
|Common Dividends Paid
|               (15,137)
|               (16,521)
|               (18,135)
|-
|Other Financing Activities
|                 (3,751)
|                 (2,523)
|                    (863)
|-
| '''<u> Cash from Financing</u>'''
| '''<u>               (46,031)</u>'''
| '''<u>               (48,486)</u>'''
| '''<u>               (58,876)</u>'''
|-
|
|
|
|
|-
|Foreign Exchange Rate Adj.
|                    (201)
|                      (29)
|                    (141)
|-
| '''<u> Net Change in Cash</u>'''
| '''<u>                   2,220</u>'''
| '''<u>                      648</u>'''
| '''<u>                    (293)</u>'''
|}
=== Ratios ===
{| class="wikitable"
!Particulars
!2020
!2021
!2022
|-
|'''<u>Profitability</u>'''
|
|
|
|-
|ROA
|11.3%
|13.8%
|14.9%
|-
|ROC
|17.0%
|20.6%
|22.2%
|-
|ROE
|40.1%
|47.1%
|47.2%
|-
|ROCE
|40.1%
|47.1%
|47.2%
|-
|
|
|
|
|-
|'''<u>Margin Analysis</u>'''
|
|
|
|-
| Gross Margin %
|67.8%
|68.9%
|68.4%
|-
| EBITDA Margin %
|45.6%
|48.1%
|49.4%
|-
| EBIT Margin %
|37.0%
|41.6%
|42.1%
|-
| Net Income Margin %
|31.0%
|36.5%
|36.7%
|-
|
|
|
|
|-
|'''<u>Asset Turnover</u>'''
|
|
|
|-
| Total Asset Turnover
|0.5
|0.5
|0.6
|-
| Fixed Asset Turnover
|3.0
|2.7
|2.5
|-
| Accounts Receivable Turnover
|4.6
|4.8
|4.8
|-
| Inventory Turnover
|23.3
|23.1
|19.6
|-
|
|
|
|
|-
|'''<u>Short Term Liquidity</u>'''
|
|
|
|-
| Current Ratio
|2.5
|2.1
|1.8
|-
| Quick Ratio
|2.3
|1.9
|1.6
|-
| Avg. Days Sales Out.
|78.7
|76.1
|75.8
|-
| Avg. Days Inventory Out.
|15.7
|15.8
|18.6
|-
| Avg. Days Payable Out.
|87.3
|95.4
|97.8
|-
| Avg. Cash Conversion Cycle
|7.1
| -3.5
| -3.5
|-
|
|
|
|
|-
|'''<u>Long Term Solvency</u>'''
|
|
|
|-
| Total Debt/Equity
|69.4%
|57.9%
|47.1%
|-
| Total Debt/Capital
|41.0%
|36.7%
|32.0%
|-
| Total Liabilities/Total Assets
|60.7%
|57.5%
|54.4%
|}
== Valuation ==
=== What is the expected return of an investment in the company? ===
The Stockhub users estimate that the expected return of an investment in the company over the next five years is 12%, which equates to an annual return of 2.3% (with dividends reinvested). In other words, an £1,000 investment in the company is expected to return £1,120 in five years time. The assumptions used to estimate the return figure can be found in the table below.
=== What are the key assumptions used to estimate the return? ===
The key assumptions used to generate this prediction include the discount rate, revenue estimates and the perpetual growth rate. Considering that the company is at maturity we would typically use a lower discount rate to account for the fact we do not expect to see large scale growth in the company. Below we have detailed relevant discount rate values for companies in the varying growth stages.
{| class="wikitable"
|+
!Description
!Value
!Commentary
|-
|Which valuation model was used?
|Discounted Cash Flow
|Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that he Stockhub users suggest to use here.
Microsoft does pays cash dividends, however the companies ability to pay these dividends is not a point of concern. Accordingly, the Stockhub users suggest using the free cash flow valuation method (rather than the dividend discount model).
|-
|Which Financial forecasts were used?
|Avg. estimates taken from Yahoo Finance<ref>https://uk.finance.yahoo.com/quote/MSFT?p=MSFT</ref>
|We have used experts forecasts to predict revenue over the next two years and then used forecasting methods to predict values up to 5 years into the future.
|-
| colspan="3" |
==== Growth Stage 1  (Startup) ====
|-
|Discount Rate(%)
|30%
|There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
|-
|Probability of Success(%)
|70%
|Research suggests that for a company in this growth stage (i.e. stage 1), the rate is suitable 70% of the time.
|-
| colspan="3" |
==== Growth Stage 2 (Growth) ====
|-
|Discount Rate(%)
|15%
|There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
|-
|Probability of Success(%)
|80%
|Research suggests that for a company in this growth stage (i.e. stage 2), the rate is suitable 80% of the time.
|-
| colspan="3" |
==== Growth Stage 3 (Maturity) ====
|-
|Discount Rate(%)
|10%
|There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
|-
|Probability of Success(%)
|100%
|Research suggests that for a company in this growth stage (i.e. stage 3), the rate is suitable 100% of the time.
|-
| colspan="3" |
==== Growth Stage 4 (Renewal/Decline) ====
|-
|Discount Rate(%)
|<10%
|There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital.
|-
|Probability of Success(%)
|100%
|Research suggests that for a company in this growth stage (i.e. stage 4), the rate is suitable 100% of the time.
|}
=== Other Key Inputs ===
{| class="wikitable"
|+
!Description
!Value
!Commentary
|-
| colspan="3" |
==== Market Capitalisation ====
|-
|Current Market Capitalisation($)
|2.593T
|As at 27th July 2023, the current value of Microsoft Corporation is $2.593 Trillion<ref>https://uk.finance.yahoo.com/quote/MSFT?p=MSFT</ref>.
|-
|Which time period do you want to use to estimate the expected return?
|Between now and five years time
|Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years. Accordingly, Stockhub suggests that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time.
|-
| colspan="3" |
==== Perpetual Growth Rate ====
|-
|Perpetual Growth Rate used(%)
|2.5%
|The OECD suggests that the global economy is expected to grow by approximately 2.7% in 2023<ref>https://www.oecd.org/newsroom/global-economic-outlook-improving-albeit-to-a-low-growth-recovery.htm</ref>, and so it doesn't make much sense to use a value larger than this. Therefore, to be conservative the StockHub user suggests a value of 2.5%.
|}
=== Sensitivity Analysis ===
The main inputs that result in the greatest change in the expected return of the Microsoft corporation investment are, in order of importance (from highest to lowest):
# The Discount Rate - we have used a default value of 8%
# The Perpetual Growth Rate - we have used a default value of 2.5%
Below we have detailed the effects of a 50% change to both the discount rate an the perpetual growth rate, an investor should consider values which are most suitable to them.
{| class="wikitable"
|+
|}
==== Sensitivity Analysis applied to Microsoft Stock - Expected returns over the next 5 years ====
{| class="wikitable"
!Main input
!50% Lower
!Unchanged
!50% Higher
|-
|The Discount rate
|310%
|12%
|(38)%
|-
|Perpetual Growth Rate
|(8)%
|12%
|38%
|}
== Risks ==
=== Macroeconomic conditions: ===
* Changes in the macroeconomic conditions due to the COVID-19 pandemic and the recent issues within the finance sector might affect Microsoft’s operations and its ability to grow/expand.
* Microsoft operates in various countries and is subject to currency exchange rate fluctuations and changes in global economic conditions, which can impact its financial results.
* Microsoft faces risks associated with maintaining and expanding its international operations, including unfavourable and uncertain regulatory, political, economic, tax and labour laws and conditions.
* Hiked interest rates to combat inflation result in increased debt, affecting growth plans.
* Microsoft's operations could be adversely affected by events outside of its control, such as natural disasters, wars or health epidemics.
=== Uncertain forecasts: ===
* Microsoft may be unable to grow its global products and services sales, or Microsoft might be unable to accurately predict its sales, hence affecting its operations and growth capabilities.
* Microsoft's financial results may vary significantly from period to period due to fluctuations in its operating costs and other factors, and these might also vary from forecasts.
* There is no guarantee that Microsoft will have sufficient cash flow from its business to pay its indebtedness or that it will not incur additional indebtedness.
* Microsoft may fail to meet its publicly announced guidance or other expectations about its business, which could cause its stock price to decline. 
=== Competition: ===
* Microsoft operates in highly competitive markets, and it faces competition from other major tech companies such as Apple, Google, and Amazon.
* Competitors could develop innovative products or services that may challenge Microsoft's market share and profitability.
* If Microsoft is unable to maintain a unique feature with its products and services, it will lose out to competitors.
* Microsoft could also suffer if its products and services contain defects or fail to perform as expected.
* Key example: Cybersecurity Threats: As a tech company handling vast amounts of data and offering various cloud-based services, Microsoft is susceptible to cybersecurity threats. Data breaches, hacking attempts, and other cyber-attacks could impact the company's reputation and financial standing.
* If Microsoft is unable to attract and retain key employees and C-suite members, it could affect Microsoft's ability to innovate and maintain its competitive edge.
* Microsoft's cloud services, including Azure and its many subsidies, have seen rapid growth, but maintaining high levels of service reliability and uptime is crucial. It faces intense competition so downtime, technical issues or poor customer service could result in lost revenue and damage the company's reputation.
=== Regulatory and Legal Challenges: ===
* Being a multinational corporation, Microsoft is subject to various regulatory and legal requirements in different jurisdictions. Changes in regulations or legal actions, such as antitrust investigations, privacy laws, or intellectual property disputes, could result in significant financial and operational impacts.
* Lawsuits filed against Microsoft’s subsidiaries and partners, such as OpenAI, can also result in impacts related to Microsoft’s reputation, its operations and financials.
* Microsoft may be required to defend or insure against product liability claims, Microsoft and its customers could be subject to cyber-attacks resulting in investigations and other adverse consequences.
* Microsoft may face regulatory challenges affecting its ability to sell its products and services.
* Microsoft may not be able to protect its source code from being copied if there is an unauthorised disclosure.
* Third parties may claim that Microsoft is infringing their IP rights.
=== Supply chain: ===
* The scarcity of silicon chips could cause Microsoft to experience delays in launching of its products and services – hardware or software, as they all depend on these chips. Microsoft may also experience an increase in manufacturing costs due to this.
* Microsoft's suppliers may fail to deliver components according to schedules, prices, quality, and volumes that are acceptable, or Microsoft may be unable to manage these components effectively.
=== Other: ===
* Increased scrutiny and changing expectations from stakeholders with respect to the company's ESG practices may result in additional costs or risks. Failure to address these concerns could affect its attractiveness to socially conscious customers and investors.
* Microsoft's operating system, Windows, and the Office suites have been among its core revenue drivers, but as the tech world evolves, Microsoft would need to diversify and reduce its dependence on these traditional offerings.
* Developing new technologies is complex. It can require long development and testing periods. Significant delays in new releases or significant problems in creating new products or services could adversely affect our revenue.
=== Summary of Risks and Microsoft's Risk Management Strategy: ===
==== Main risks: ====
* Dependence on Windows and Office Suite products.
* Cybersecurity Threats.
* Legal challenges.
==== Microsoft’s mitigation strategy: ====
* Diversification into cloud-based services and other industries through M&A.
* Continuous engineering and development of security and privacy features.
== Catalysts ==
Over the years, Microsoft has ascended to global prominence, solidifying its position as one of the largest and most influential technology entities in the world. This part delves into the key catalysts that have propelled Microsoft's remarkable growth and success, incorporating recent updates and developments to provide a more in-depth analysis of the company's journey.
=== '''1. News Events''' ===
Throughout its illustrious history, Microsoft has encountered pivotal news events that have significantly shaped its trajectory and market position, showcasing its ability to adapt and innovate.
'''a) Launch of Windows Operating Systems'''
The seminal launch of Windows 95 in 1995 marked a transformative milestone for Microsoft, propelling the company to the forefront of the personal computing revolution. Subsequent releases, including Windows XP, Windows 7, and Windows 10, further solidified Microsoft's dominance in the operating system market, with each version introducing groundbreaking features and enhancing user experiences. The Windows series laid the foundation for Microsoft's ubiquity in the digital world.
'''b) Acquisition of Companies'''
Strategic acquisitions have been instrumental in driving Microsoft's expansion and diversification across various sectors. Notable examples include the 2011 acquisition of Skype, a pioneering communication platform, which not only fortified Microsoft's presence in the realms of voice and video communication but also positioned the company to compete effectively in the digital collaboration landscape. Additionally, the acquisition of LinkedIn in 2016 granted Microsoft access to a vast professional network, enabling new synergies and opportunities.
'''c) Leadership Changes'''
The transition of leadership within Microsoft has been a catalyst for transformative growth. The shift from Bill Gates to Steve Ballmer in 2000 brought a new era of corporate strategy, while Ballmer's tenure was marked by a focus on enterprise and cloud services. The appointment of Satya Nadella as CEO in 2014 ushered in a culture of innovation, prioritizing cloud-first and mobile-first approaches. Nadella's leadership, emphasizing empathy and a growth mindset, has been pivotal in Microsoft's resurgence as a leading force in the technology landscape.
=== '''2. Financial Strategies''' ===
Microsoft's astute financial strategies have played a pivotal role in sustaining growth and delivering consistent value to shareholders.
'''a) Subscription-Based Revenue Model'''
In a strategic pivot, Microsoft embraced the subscription-based revenue model, epitomized by offerings such as Microsoft 365 and Xbox Game Pass. By adopting this approach, Microsoft ensured a steady and predictable income stream, while simultaneously fostering customer loyalty. The subscription model facilitated seamless software updates and enhanced user experiences, further fueling Microsoft's growth and market penetration.
For instance, one of Microsoft's most well-known subscription-based services, is Microsoft 365. This subscription service, which was formerly known as Office 365, provides a variety of productivity programs, including Word, Excel, PowerPoint, Outlook, and more, as well as cloud storage through OneDrive and teamwork software like Microsoft Teams. Customers pay a regular subscription price to gain access to the most recent versions and upgrades rather than buying individual licenses for these goods.
Moreover, Xbox Game Pass is another subscription-based business model in the gaming sector. For a monthly subscription fee, this service enables Xbox console and PC users to access a vast collection of games. On the day of its release, it features first-party Microsoft games, adding value and promoting further player interaction.
'''b) Stock Buybacks and Dividends'''
Microsoft's commitment to returning value to shareholders through stock buybacks and dividends has been a cornerstone of its financial stability and investor confidence. Regular dividend payments and well-executed share buyback programs have demonstrated the company's robust financial position and dedication to rewarding shareholders.
For example, the share repurchase programs, which include Microsoft purchasing its own outstanding shares on the open market, have been used by the company in the past. The goal of this procedure is to decrease the number of outstanding shares, which will raise the value of the remaining shares and convey faith in the company's financial stability. Microsoft has announced numerous buyback schemes throughout the years.
What's more, Microsoft also has its own capital allocation strategy in its annual reports and financial statements respectively. This plan involves a balanced approach to share repurchases to increase shareholder value, dividend payments to shareholders, and business reinvestment for growth prospects.
'''c) Strategic Investments'''
Significant investments in research and development, strategic acquisitions, and cloud infrastructure have been the bedrock of Microsoft's technological advancements and market expansion. Embracing emerging technologies, such as artificial intelligence, augmented reality, and quantum computing, has positioned Microsoft as a trailblazer at the forefront of innovation and digital transformation.
The first aspect should be the acquisition. With the goal to expand the range of its offer of products and services, Microsoft implemented a strategic acquisition strategy. The makers of Minecraft, Mojang, LinkedIn, GitHub, and Bethesda Softworks' parent company ZeniMax Media are among the notable acquisitions. Through these acquisitions, Microsoft became able to broaden its user base, access new markets, and gain new technologies.
Furthermore, for the future deep development and business line exploration. Microsoft has made substantial investments in the domains of cloud computing and artificial intelligence (AI). The international collection of data centers supporting Azure, Microsoft's cloud computing platform, has experienced significant capital expenditures. Additionally, Microsoft's efforts to conduct research and development in AI have allowed the integration of AI capabilities into a number of other goods and services.
'''d) Financial Review'''
Microsoft's financial performance and shareholder value have been bolstered by strategic repurchases of equity securities and a commitment to dividends. The company has implemented multiple share repurchase programs, demonstrating its confidence in its financial position and long-term outlook. In 2016, the Board of Directors approved a share repurchase program of up to $40.0 billion, followed by another $40.0 billion program approved in 2019. In 2021, a new share repurchase program of up to $60.0 billion was authorized, with $40.7 billion remaining as of June 30, 2022<ref>Microsoft (2022). ''Microsoft Investor Relations - Annual Reports''. [online] Microsoft.com. Available at: <nowiki>https://www.microsoft.com/en-us/Investor/annual-reports.aspx</nowiki>.</ref>.
Under these share repurchase programs, Microsoft has repurchased significant amounts of its common stock, amounting to $28.0 billion in fiscal year 2022, $22.97 billion in fiscal year 2021, and $19.69 billion in fiscal year 2020. These buybacks have been made using cash resources, demonstrating the company's ability to invest in itself and return value to shareholders simultaneously.
Moreover, Microsoft's commitment to rewarding shareholders is evident through its consistent dividends. In fiscal year 2022, the company declared dividends totaling $2.48 per share, amounting to $18.56 billion in total dividends. Fiscal year 2021 saw dividends totaling $2.24 per share, amounting to $16.87 billion. These dividends have been instrumental in attracting and retaining individual investors, fostering a broad and diverse shareholder base<ref>Microsoft (2022). ''Microsoft 2022 Annual Report''. [online] Microsoft. Available at: <nowiki>https://www.microsoft.com/investor/reports/ar22/index.html</nowiki>.</ref>.
'''e) Stock Performance'''
Microsoft's strong financial performance and strategic decisions have translated into exceptional stock performance over the past five years. A comparison of the 5-year cumulative total return among Microsoft Corporation, the S&P 500 Index, and the NASDAQ Computer Index showcases the company's market outperformance.
As of June 30, 2022, an initial investment of $100 in Microsoft's stock on June 30, 2017, would have grown to $397.90, demonstrating a remarkable increase in value. In comparison, an equivalent investment in the S&P 500 Index would have grown to $170.86, and in the NASDAQ Computer Index to $228.71 during the same period. Microsoft's consistent growth and outperformance illustrate the effectiveness of its strategic initiatives and its ability to create value for shareholders.
=== '''3. Technological Advancements''' ===
Microsoft's relentless pursuit of technological advancements has been a driving force behind its growth and continued success.
'''a) Cloud Services (Azure)'''
The seminal launch of Microsoft Azure in 2010 marked a watershed moment, as Microsoft ventured into the realm of cloud computing, revolutionizing the technology landscape. Azure's scalability, reliability, and comprehensive suite of services swiftly established Microsoft as a leading player in the fiercely competitive cloud services market. Azure's success has been a key driver of Microsoft's revenue growth and diversification<ref>Abandy, R. (2022). ''The History of Microsoft Azure''. [online] TECHCOMMUNITY.MICROSOFT.COM. Available at: <nowiki>https://techcommunity.microsoft.com/t5/educator-developer-blog/the-history-of-microsoft-azure/ba-p/3574204</nowiki>.</ref>.
'''b) Surface Devices'''
The introduction of Microsoft Surface devices in 2012 marked Microsoft's entry into the hardware market, demonstrating the company's commitment to innovating across multiple fronts. The Surface line of tablets and laptops not only showcased Microsoft's hardware capabilities but also provided a platform for users to experience Windows in its purest form. The Surface devices have garnered widespread acclaim, further bolstering Microsoft's brand equity and competitiveness in the premium device segment.
'''c) Artificial Intelligence'''
Microsoft's significant strides in AI technologies have unlocked a realm of possibilities, driving growth in various domains such as natural language processing, computer vision, and machine learning. Azure AI services have empowered businesses with cutting-edge tools to build intelligent applications, while integrating AI capabilities into products like Microsoft 365 has enriched user experiences and productivity. The company's investments in AI continue to accelerate innovation and open new avenues for growth.
=== '''4. Investor Contributions''' ===
Microsoft's growth and success have been fortified by the unwavering support and contributions of its investors, reflecting the confidence in the company's vision and long-term potential.
==== '''a) Institutional Investors''' ====
Major institutional investors, including pension funds and mutual funds, have placed unwavering faith in Microsoft's prospects, resulting in increased stock ownership and a substantial capital infusion. The backing of institutional investors has been a driving force in bolstering Microsoft's financial stability and growth trajectory.
As of March 30, 2023, the major institutional shareholders of Microsoft include the following prominent investment management companies<ref>https://finance.yahoo.com/quote/MSFT/holders/</ref>:
===== '''The Vanguard Group, Inc.''' =====
The Vanguard Group is a renowned investment management company known for its expertise in index funds and exchange-traded funds (ETFs). It caters to both individual and institutional investors and holds substantial stakes in various companies spanning diverse industries. The Vanguard Group currently owns 8.74% of Microsoft shares, valued at approximately $219.4 billion.
===== '''BlackRock, Inc.''' =====
BlackRock is a global powerhouse in investment management, offering an array of financial products and services. As the largest asset manager in the world, it specializes in managing portfolios for institutional clients such as pension funds, endowments, and other large entities. BlackRock, Inc., holds 7.23% of Microsoft shares, valued at around $181.6 billion.
===== '''State Street Corporation''' =====
State Street Corporation is a leading financial services company specializing in investment management, custody services, and investment research. It caters to institutional investors, including mutual funds, pension funds, and other asset managers. State Street Corporation plays a vital role in managing and safeguarding financial assets. The company currently holds 3.93% of Microsoft shares, valued at approximately $98.7 billion.
===== '''Fidelity Investments''' =====
Fidelity Investments is a multinational financial services corporation providing a wide range of asset management, brokerage, and retirement plan services, among others. It offers an extensive array of investment options to individual and institutional clients, including mutual funds, retirement plans, and brokerage accounts. Fidelity Investments holds 2.70% of Microsoft shares, valued at around $67.7 billion.
==== '''b) Individual Investors''' ====
The allure of Microsoft's growth prospects has resonated with individual investors, leading to a broad and diverse shareholder base. The collective contributions of individual investors have provided vital capital and served as a testament to Microsoft's position as a favored investment choice.
The main leading individual shareholders of Microsoft are as follows:
===== '''Steve Ballmer''' =====
Steve Ballmer Steve Ballmer became an integral part of Microsoft in 1980 and quickly rose to prominence within the company's executive team. His significant contributions to managing Microsoft's sales and operations played a vital role in driving the company's growth and expansion. In the year 2000, Ballmer succeeded Bill Gates as the CEO of Microsoft, guiding the company through various challenges and opportunities, including the emergence of mobile computing and transformative shifts in the software industry. Under Ballmer's leadership, Microsoft successfully launched innovative products like the Xbox gaming console and the Office suite. He also played a pivotal role in spearheading strategic initiatives, including the acquisition of Skype and the seamless integration of cloud computing services into Microsoft's offerings. After stepping down as CEO, Ballmer remained actively engaged in philanthropy, focusing on civic engagement and initiatives to improve public education. Steve Ballmer currently owns 4.5% of Microsoft shares, with an approximate value of $102.7 billion<ref>https://www.kamilfranek.com/who-owns-microsoft-largest-shareholders/</ref>.
===== '''Bill Gates''' =====
Bill Gates, along with his childhood friend Paul Allen, co-founded Microsoft in 1975. Gates played a critical role in the development and success of the company. His visionary leadership led to the creation of the MS-DOS operating system, which laid the foundation for Microsoft's future achievements. Gates also spearheaded the development of Microsoft Windows, revolutionizing the personal computer industry.
Throughout his tenure at Microsoft, Gates was known for his entrepreneurial vision, business acumen, and unwavering commitment to innovation. In more recent years, Gates shifted his focus to philanthropy, establishing the Bill and Melinda Gates Foundation. He continues to wield significant influence in the technology and global health sectors, leveraging his wealth and expertise to address pressing societal challenges. Bill Gates currently owns 0.9% of Microsoft shares, valued at approximately $20.5 billion<ref>https://businessmodelanalyst.com/who-owns-microsoft/</ref>. During the company's initial public offering (IPO) in 1986, Gates held approximately 45% of the outstanding shares. However, he has gradually reduced his ownership stake to support his philanthropic endeavors. Gates' careful and strategic divestment ensured that he had the necessary resources to address critical global issues through his foundation.
=== '''Conclusion''' ===
Microsoft's growth and success have been fueled by a confluence of catalysts, including transformative news events, visionary leadership, and a focus on financial prudence and technological innovation. The company's ability to adapt to market dynamics, embrace emerging technologies, and engage with its investors has been pivotal in cementing its position as a global technology leader. Microsoft's commitment to innovation, customer-centricity, and shareholder value continues to drive its growth trajectory, ensuring its enduring legacy as a transformative force in the digital age. As the company navigates evolving technology landscapes and societal challenges, its dedication to responsible corporate citizenship and sustained innovation will undoubtedly shape its future growth and success.


== References ==
== References ==
__INDEX__
__INDEX__
<references />[https://www.organimi.com/organizational-structures/microsoft/#:~:text=Despite%20being%20such%20a%20huge%20organization%2C%20Microsoft%20has,Vice%20President%20for%20Business%20Development%2C%20Strategy%2C%20and%20Ventures. https://www.organimi.com/organizational-structures/microsoft/#:~:text=Despite%20being%20such%20a%20huge%20organization%2C%20Microsoft%20has,Vice%20President%20for%20Business%20Development%2C%20Strategy%2C%20and%20Ventures.]
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