Microsoft is on cloud nine
Last month, Apple, among other products, unveiled a $19 ‘Polishing cloth’. Many may well find it worth the price tag, but some were a bit surprised at the world’s most valuable (publicly traded) company reaching deep to supplement its revenues. Now it has become apparent why. It is no longer the world’s most valued firm. The title is now back with Microsoft, at least temporarily, as it eclipsed Apple’s $2.46 trillion with its $2.49 trillion.
Jokes apart, it’s the cherry on top of a remarkable year for the firm which only crossed a market capitalisation of $2 trillion in June. What has driven its stock’s 600% rise under the leadership of Satya Nadella?
The answer lies chiefly with the Microsoft division that Nadella used to head before he took over as CEO - Azure (cloud services). It is already larger than the ‘Windows’ franchise that Microsoft is best known for, and is on track to surpass Office to become its biggest business by next year. Its contribution to Microsoft’s revenue increased from 4% in 2018 to 17% at the beginning of 2021.
In the recently announced earnings report for the July-to-September quarter, it was the fastest-growing Microsoft business, rising 50% year-on-year. Overall, Microsoft’s revenue for the quarter grew 22% over the year-ago period, its highest jump since 2018. The previous quarter (April-to-June 2021) wasn’t too far behind either, logging 21%. This makes it easier to see why Microsoft has gained $500 billion in market cap in roughly four months and leapfrogged Apple.
Another focus area for Microsoft under Nadella’s leadership has been acquisitions. Since taking the helm in 2014, he has overseen $45 billion expenditure on assimilating the likes of professional-networking portal LinkedIn, video game Minecraft, and code-repository GitHub.
A $19 billion deal to acquire speech-recognition company Nuance was announced this year.
These acquisitions are now beginning to bear fruit. Minecraft recently became the world’s best-selling game, and is shifting from Amazon Web Services to Azure. LinkedIn’s quarterly revenue for the April-to-June quarter was thrice that in the previous year. For the most recent quarter, it reported a 42% jump in revenue over the previous year.
An interesting note here is that one of Microsoft’s fastest growing businesses for the recently reported quarter was ‘search and news advertising’ (40%). Its group-chat service, Teams, has also been doing well since the onset of the pandemic, and has over 250 million monthly active users. However, the XBox division grew a meager 2% despite heavy demand as it continues to be plagued with supply chain issues.
Once those issues ease up, and the world continues its shift towards cloud computing, Microsoft could see its stock rise further. But the head which wears the crown certainly won’t rest easy.