Shares of Microsoft Corporation MSFT have been steadily treading higher over the last one year. The stock generated a return of almost 9% compared with the S&P 500 index’s gain of 7.87%.
The upward momentum in the stock has been primarily driven by strong cloud growth. The continuing enterprise strength, benefits from the Office 365 subscription model, strong growth prospects of Azure and promising new products are expected to generate top-line growth in 2016.
Meanwhile, the company has announced the introduction of Office 365 in 10 new markets namely Mozambique, Martinique, Maldives, Myanmar, Guadeloupe, Greenland, Cambodia, Bhutan, Laos and Vatican City. Following this, Office 365 will be available in 150 markets worldwide with language support for 44 vernaculars.
What this Means for Microsoft?
For over 25 years, Microsoft Office has retained its position as one of the major contributors to the company’s overall results. Office 365 marks the company’s successful transition from the traditional software business model to the subscription business model.
As per the company’s last earnings report, Office 365 has now a total of 24 million subscribers with 0.9 million added in the last quarter alone. Notably, a 5% increment was observed in revenues for cloud services and office commercial products with Office 365 revenues growing a whopping 51%.
As per Microsoft’s estimate, more than 1.2 billion people worldwide use Microsoft Office at home, school and at the workplace. However, that includes users who use it as installed software on their PCs.
With the subscription model in place, Microsoft would be able to generate a steady revenue stream. Moreover, this would save users time, effort and money to upgrade to the newer version of the latest Office suite, thus making it more user friendly.
To top it all, Office 365’s compatibility with 44 languages makes it more appealing to the end user and offers scope for Microsoft to penetrate further into newer markets.
We note that there is fierce competition in the office suite space. Alphabet Inc.’s GOOGL Google Work poses stiff competition for Office 365. Some other names include Zoho, OX and Live Documents.
However, Microsoft’s aggressive expansion plans for newer markets augur well for the company and will surely provide it an edge in the long run.
Zacks Rank & Key Picks
At present, Microsoft has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology space include Konami Holdings Corporation KNMCY and Rosetta Stone Inc. RST, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, the consensus estimate for Konami Holdings’ current year improved to $1.59 from $1.39 over the last 30 days.
The consensus estimate for Rosetta’s current year narrowed down to a loss of $1.62 from a loss of $1.94 over the last 30 days.
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