Microsoft Shares Hit All-Time High -- 2nd Update
October 21 2016 - 6:28PM
Dow Jones News
By Jay Greene and Anne Steele
Shares of Microsoft Corp. jumped to an all-time high Friday in
the wake of a positive earnings report, nearly 17 years after
setting its previous high-water mark in the heyday of the dot-com
boom.
The stock traded as high as $60.45 on Friday morning, eclipsing
its previous midday trading high of $59.97. It eventually closed
Friday at $59.66, above its previous record close of $59.56.
In December of 1999, Microsoft shares closed at their highest
level, $59.56, adjusted for a 2003 stock split. Back then, the
stock soared on the software giant's dominance of the PC operating
system market and productivity applications. The company was riding
the wave of internet use, which boosted demand for its
software.
But as the dot-com bubble burst, Microsoft shares slid and then
stagnated for nearly 13 years as the company wrestled with
antitrust regulators and lagged behind rivals such as Apple Inc.
and Alphabet Inc. on emerging tech trends such as mobile computing
and web search.
Investors often blamed then-Chief Executive Steve Ballmer for
the company's challenges. The stock started to rally in the summer
of 2013, about the time that Mr. Ballmer announced he would leave
Microsoft.
His successor, Satya Nadella , has unwound some of Mr. Ballmer's
failed efforts, notably writing off most of the $9.4 billion
acquisition of Nokia Corp.'s handset business. Instead, Mr. Nadella
has focused the company's efforts on cloud computing, tapping
longstanding relationships with corporate customers to convince
them to use Microsoft's web-based, on-demand Azure services.
"This move has been in the works for a while, but clearly under
the leadership of Satya there's been more focus. It feels like
there's been a faster embrace of change -- and a cultural change at
the company," said Pacific Crest Securities analyst Brent Bracelin,
pointing to last month's announcement that Microsoft would
reorganize efforts around artificial intelligence.
"There's already a focus on the next thing beyond cloud," he
said.
While Amazon.com Inc. dominates the market, Microsoft has
emerged as the online retailer's stiffest competition. For the past
year, revenue from Azure has doubled compared with the year-earlier
period each quarter.
Perhaps more important is the meaningful improvement in cloud
margins. While gross margins overall are depressed because
Microsoft has been spending to build up its data infrastructure to
support the cloud business, commercial cloud margin shot up to 49%
in the latest quarter from 42% in the previous quarter.
"The increase in profitability of this business is what's really
exciting for investors," said Nomura analyst Frederick Grieb.
Mr. Nadella, on the company's earnings conference call Thursday,
highlighted the progress of Microsoft's cloud business.
"Once enterprise customers choose one of our cloud services,
they continue to adopt more services," he said. He noted that
Microsoft's cloud business has annualized revenue of more than $13
billion and that the company remains on track to expand that to $20
billion in fiscal 2018.
And investors are cheering the change. Two years ago, whether
Microsoft would be able to make the transition to cloud was a "big
question," said Mr. Bracelin.
"These big large-cap companies -- their valuations are dictated
by how well they're doing in transitioning to cloud computing where
the stakes are large," he said. "Microsoft is doing an excellent
job pivoting, and that has implications long-term."
Microsoft shares began their latest rally three months ago,
after the company posted better-than-expected fiscal fourth quarter
results on the strength of its cloud business. The stock popped
again in after-hours trading Thursday after first quarter results
showed Microsoft continuing to successfully transition its business
to the cloud.
The rally around Microsoft's successful shift to cloud computing
comes with an important backdrop, Mr. Grieb points out: The slide
in personal computer sales is moderating. Personal computer
shipments fell again in the second quarter, but the declines were
less severe than in other recent periods.
Write to Jay Greene at Jay.Greene@wsj.com and Anne Steele at
Anne.Steele@wsj.com
(END) Dow Jones Newswires
October 21, 2016 18:13 ET (22:13 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Alphabet (NASDAQ:GOOG)
Historical Stock Chart
From Sep 2023 to Sep 2024