In 2015, a year after Satya Nadella became its CEO and committed his company to the cloud, I put some Microsoft (NASDAQ:) shares in my retirement account and forgot about them. My patience has been rewarded. A $53 investment in MSFT stock is worth almost $127 now, and reinvesting dividends has brought me more shares, which have also risen in value.
With a market cap of $972 billion, Microsoft is now the world’s most valuable company, and despite his earnest philanthropy, co-founder Bill Gates is worth over $100 billion.
The question is how long can the company keep growing without getting into the same monopoly penalty box that kept it from reaching its 1999 highs until 2016?
That’s Nadella’s challenge now.
Spreading Bets Through Cloud
The key is to continue spreading the company’s bets, growing as humbly as it can.
The humility is evident in the company’s numbers. Growth returned just two years ago, and net income was lower in fiscal 2018 than in 2017. But Nadella was using the time to build infrastructure and relationships. The big benefits have
At its present pace, Microsoft will bring in well over $120 billion of revenue and over $30 billion of net income during fiscal 2019, adding to a cash pile that had reached $131 billion at the end of March. Microsoft has already piled up over $21 billion in operating cash flow through the first half of the fiscal year. Forget it IBM (NYSE:), Microsoft is now Apple (NASDAQ:).
The key lies in partnering with other companies and not trying to consume them. Microsoft has , most of which you have never heard of, for whom its tools are essential. Microsoft has deep relationships with companies like Adobe (NASDAQ:) and SAP (NYSE:). But it has avoided a big acquisition that might lead rivals to compare it with Oracle (NASDAQ:), which bought many of its database channel partners in the 2000s, then demanded monopoly rents.
The best evidence for how well this works is a recent announcement with Sony (NYSE:) on gaming and streaming. The two firms’ consoles have battled each other for decades. But in the new field of , they position themselves as underdogs against Amazon (NASDAQ:) and Alphabet (NASDAQ:, NASDAQ:GOOGL), which are already in the field.
Good to Not Be King
The strength of other cloud czars is Microsoft’s secret weapon in any battle with regulators.
Windows is no longer a monopoly thanks to Google Chromebooks. Skype is barely mentioned in video calling — the focus is all on Zoom Video (NASDAQ:). No one worries about LinkedIn because Facebook (NASDAQ:) is so dominant.
The acquisitions Microsoft is making are on the bleeding edge, in , where it trails Chinese giants like Alibaba (NASDAQ:). Microsoft was seen as a good home for Github, the open source repository, because it’s seen as more neutral than other potential acquirers, like IBM, might be.
The Bottom Line
In his most recent conference call, Nadella like security, hardware and social, where the company clearly trails market leaders.
But Microsoft Azure is Microsoft booked $9.7 billion of revenue as “intelligent cloud” during the quarter, with margins of over 20%, putting $3.4 billion of new capital to work there. Again, thank goodness for Amazon. No one is screaming about an “Azure monopoly.”
So long as Nadella can keep spreading his bets, Microsoft and investors like me will keep all the way to the bank.
is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT, AMZN and AAPL.
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