MSFT
📉 Microsoft is currently at a 52-week low, with a more than 15% drop from its highs, which is rare for the company.
💼 It has a strong competitive advantage with its Office suite, benefiting from the network effect and high switching costs.
☁️ It is a leader in cloud services with Azure, holding 21% of the market share in a sector that grew 22% in 2024.
✅ The company’s revenues are recurring, and the business is highly scalable, generating more revenue with minimal additional costs.
@Invierteygana:
“Microsoft is the global leader in operating systems and software programs for PCs and servers. It has accumulated a drop from highs of more than 15%, and is currently at 52-week lows, something that is very rarely seen in a company like Microsoft. So, let’s see if it is a great investment opportunity. Its sales are divided into three segments. The first is mainly the Office 365 package, where we have Excel, Word, Teams, Copilot, etc. This generates 22% of its sales. LinkedIn is also included here, which generates 7% of the revenue. Skype was included in this area, but Microsoft has announced its closure by May to focus its efforts on Teams. Intelligent Cloud is mainly Azure, which is one of the leaders in cloud computing, only behind Amazon, and maintains the 21% market share it had in 2021, a market that has grown by 22% in 2024. The third area is mainly Windows licenses, which represent 99% of sales. This also includes the Edge search engine, Bing advertising, Xbox video consoles and video games, and device sales. The revenues from the video game company Activision Blizzard, which Microsoft bought for 68,000 million after a long wait for antitrust authorities to approve the purchase, will also be included here. Half of all its sales come from the United States, which may be surprising to be so high considering that the company has a global presence. Microsoft is present in many areas, so it faces many competitors. For example, it competes against Sony and Nintendo in the video game console market, and it competes with companies like Tencent in the video game market. With the purchase of Activision Blizzard, Microsoft becomes one of the world leaders in the video game market. In the case of its Bing search engine, its competition is Google. In the case of Microsoft Teams, it competes against Zoom and Google Meet, among others. But let’s focus on the most important services of Microsoft. Let’s start with the Office suite. The Office package has a strong competitive advantage: the network effect. The more users use Office, the more valuable it becomes for the rest of the users. Although OpenOffice or LibreOffice are quite good, people don’t bother to use a program that generates files that they may not be able to share with third parties. If a product like OpenOffice or LibreOffice, which are quite good and cost nothing, cannot scratch even a bit of market share from the product of another company, in this case Office, I think we can safely say that Microsoft’s Office 365 has a strong competitive advantage. Office can be purchased with a one-time payment, but also through a monthly or annual subscription, both for individuals and for companies. In addition to the network effect, the cost of switching from Office is high, since the entire company would have to adapt to using new spreadsheets, a new word processor, etc. These competitive advantages allow it to raise prices quite happily. They have recently added the Copilot artificial intelligence chat to Microsoft 365 at no additional cost. Here it can be said that its only real competitor is Google with its Workspace, although it can be a tough rival in terms of substitutes. Before, I did everything on paper and pen, but I doubt that Excel will now be abandoned to use a notebook. As for Windows, it is clearly the market leader in operating systems for computers, but it has an important competitor: Apple, since its computers have their own operating system. Beyond Apple’s operating system, I don’t see any serious threat to Windows. All computers need an operating system, so we would have to think of a substitute for a computer. In today’s world, I only see a mobile phone performing some of the tasks that a computer performs, with the mobile being little threat of replacement for a computer. As for cloud services, its main rivals are Amazon and, again, Google. The Gartner Magic Quadrant is a tool to know at what point of innovation and level of development companies are, and it is a reference for companies that choose technological solutions. Well, according to Gartner, the leaders in innovation and development of services in the video conferencing tool sector are those that are higher up and further to the right. So, currently the leader is Teams from Microsoft. In the case of cloud services, the leading company in 2020 was Amazon, followed by Microsoft. In 2022, Microsoft improved its position, as it became as far to the right as Amazon. In 2024, Microsoft is the furthest to the right of all, although Google has reached it. If we look at the market shares, we see how Amazon, Microsoft, and Google have more than half of the market, and little by little they are eating the small players, so I don’t see much threat here. The three companies will grow. As for substitutes, a local server could be one, but the trend is to go to the cloud and reduce local servers. In the case of LinkedIn, being the largest professional networking platform, it benefits from the network effect, where the large member base attracts more users, and there is no competitor that threatens it. Most of Microsoft’s services generate recurring revenue, as they are billed monthly or annually. In addition, the business is quite scalable. If it increases subscriptions to Microsoft 365, LinkedIn, its video games, etc., it will generate more revenue with hardly any more costs. In conclusion, Microsoft is an excellent company.”
@Invierteygana shows the exact part of the YouTube video where Microsoft is discussed below.
View the video on YouTube.
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