Hello once again guys welcome back to Stock radar I'm so glad to have you guys Here and this week we're going to be Talking about Microsoft stock I've been Very busy this last week moving into my New apartment and I do have an apartment Tour video ready for you guys I'm gonna Just have to edit it and I'll have that Up in the next couple of days But uh it's been very busy with that Move and whatnot but um this was my top Priority this week was getting this Video here done and looking into Microsoft stock and so that's what we're Going to be talking about today and I'm Also working on outlining the next Course for stock radar which is going to Be bear Market investing strategies that Was the one you guys voted on and said That's what you want to see and so I'm Going to start doing those videos soon And I should have that out in the next Couple of weeks and I'm also reaching Out to some other Financial experts out There looking to get a course on options Down the road and some different courses From other people out there that want to Put some information together for us Here so all kinds of excited stuff in The works for stock radar but anyways Let's go ahead and talk about this stock Here as we said the company is Microsoft They trade under the symbol msft this is An older company that 40 at 43 years old
And this is a blended stock here as far As being both an income stock and a Growth stock and one of the biggest Things we're going to talk about with Microsoft here is oftentimes are LinkedIn with like the Fang stocks and I Know if you look at uh Fang plus I Believe that's 10 companies and I'm Pretty sure Microsoft is in there and so We're expecting this or some people Think of Microsoft as one of these Aggressive growth stocks and they're Definitely not an aggressive growth Stock and we're going to look at the Number especially looking at the uh the Growth of assets and the growth of Revenue and they're really not an Aggressive growth stock they're a very Stable growth stock and they're also an Income stock and so if you're looking For an explosive exciting growth stock You're probably going to want to look Past Microsoft but if you're also Somebody who looks for some growth of The underlying asset as well as a very Stable and healthy dividend then Microsoft might be a good pick for you They have a price to earnings ratio of 25.9 and they have a market Capitalization of 729 billion they're One of the largest publicly traded Companies out there now Microsoft does Pay a dividend they pay a 1.8 dividend And they have been paying that dividend
For 14 years and they've grown it in Each of those years so they have a 14-year growth streak as well so let's Go ahead now and talk more about what Microsoft actually is I'm sure a lot of Us are familiar with their software and With their operating system but there's A little bit more to them so let's go Through this so first of all Microsoft Develops licenses and supports software Products services and devices worldwide And they operate in three different Business segments first of all Productivity and business processes Second of all the intelligent cloud and Then third of all the more personal Computing so as far as productivity and Business processes go that is um Office 365 as we're all familiar with SharePoint Skype for business and Linkedin is the primary areas of up that Segment and then as far as intelligent Cloud goes that's their server products And cloud services that's the most Interesting part of their business for Me and the third the more personal Computing segment is the Windows Operating system the windows iot Internet of Things implications MSN ads I forgot MSN even existed until I did this Bing ads again I forgot Bing Existed until I did this analysis and Then the Windows phone which was largely A flop I'm pretty sure I don't hear much
About that anymore Microsoft circuit Surface which is quite interesting and Then the Xbox falls under more personal Computing Now uh Microsoft just reported earnings They had a very interesting growth here Across all these segments so they had a Good amount of growth here uh quarter Over quarter and I want to share those Numbers with you guys now so in the Productivity and business processes they Had 17 growth quarter over quarter in The intelligent Cloud segment they also Had 17 growth quarter over quarter and Then in the more personal Computing they Had 13 growth quarter over quarter now What I like about that is it's pretty Much even in each of their business Segments it's not like they're having You know 40 growth in intelligent cloud And then no growth elsewhere and so That's one of the main things I like About Microsoft right now is they're Experiencing growth across all of their Business segments uh whether it's 17 or 13 it's pretty similar and so that is One thing I like to see is that that Growth is Diversified across all their Different business segments but anyways Now let's go ahead and talk about some Of the pros for Microsoft and why I like Them as an investment first of all I Always like lower beta stocks especially For beginners because they're less
Volatile stocks they're not going to Give you such a gut-wrenching ride here If you're an investor and as a Technology stock you know you are going To expect to see a higher beta but with A beta of 1.28 that is a low beta stock In my opinion or lower beta than you'll See with other technology stocks I'm Pretty sure the last time I've looked at Advanced Micro Devices they have a beta Of above three they're a very high beta Very volatile stock with a lot of up and Down price movements second of all what I like is they have a forward p e of 23.3 so they have a reasonable forward Price to earnings ratio and then third Of all what I like is that the analysts As far as their price Target is at a 109.26 which implies about 17 upside for This stock so I always like to see when The analyst price Target is above the Current price and that means that on Average analysts are expecting this Stock to go up in price and so a 17 Upside is implied by the analysts Expectations the other thing that I like Is oftentimes when I'm looking at a Stock and I haven't done this with the Other stocks I'll probably incorporate This going forward is I like to look at The short percent of float or how many Shares are being shorted versus the Outstanding shares or the total number Of shares out there and when you're
Seeing twenty Thirty forty percent short Percent of float that's when you start To worry because you have a lot of People short selling this stock or Betting against the stock and let's look At Microsoft here they have a short Percent of float of 0.67 that is one of The lowest that I've ever seen you'd Really have to be a complete to be Short selling a stock like Microsoft and So about 0.6 percent or 0.7 percent of Shareholders are short selling that Stock meaning like 99.3 percent are Bullish on Microsoft stock so that again Is a good sign that uh despite the fact That the stock is up quite a bit over The last couple of years there aren't Too many people out there short selling It and most people are bullish on Microsoft so what else do I like about Microsoft as I said the Diversified Revenue streams they have multiple Different ways to be making money And second of all the fact that they Have Um they had stable growth across all of Those different segments uh so the Segment growth was not in just one area It wasn't just in the intelligent cloud Or in the uh the more personal Computing Segment it was in all three segments so That was one thing I'd like to see it Well Diversified growth across the Different segments the other thing I
Like about Microsoft was that according To Forbes in 2017 Microsoft came in Number one for the top cloud computing Vendor so they are very competitive in The cloud computing space but again you Do have to understand that Amazon is Dominating this space right now as far As cloud computing goes but I think that Is still very much the wild west and There's a lot of room to grow and so I Like any company that is involved in Cloud computing but later on we're going To talk about why that's also one of my Cons is the fact that Microsoft is Competing with Amazon in that cloud Computing segment but they were voted Number one by Forbes in 2017 for cloud Computing vendor and that is definitely A pro the other Pro I have for them is The fact that they switched their Microsoft Office Suite of software to a Subscription model and this is just a Better Business we've seen a lot of Companies out there doing this we know Adobe is doing this with their Adobe Photoshop and different products there They have the Creative Cloud Suite Rather than selling a one-time license To photoshop for maybe four or five Hundred dollars well now they're going To let you use it for twenty dollars a Month and if you think about that if Somebody is using that for a number of Years you're going to make more money on
That subscription model and it's also a Much lower barrier to entry to buy that Software and so I like seeing companies Switching over to this business model It's a much more appealing business Model to have that subscription Revenue Coming in and as of the most recent Quarter here Microsoft has 30.6 million Subscribers to The Office 365 Subscription for that software and so I I like these recurring Revenue Businesses uh and again that's another Reason why I like at T is because of That recurring monthly billing there With their cell phone plans and now We're we're seeing companies like Adobe And Microsoft adopt that style with Their software the other Pro I have for This company is that they own LinkedIn And they own Skype now the main reason Why they acquired LinkedIn was for the Talent and also for the data and it was A logical acquisition a lot of times When you see companies acquiring other Ones it's usually for the talent or for Their data and so they got a lot of Talent from that LinkedIn acquisition But I also particularly like the fact That Microsoft owns Skype and this is Because I was doing some research I was Watching some videos and this was Actually one that valuetainment had done Talking about industries that are going To see massive disruption in the coming
Years and they talked about the fact That we can make calls for free on Skype And we can make calls for free on Facebook messenger and on Snapchat and His whole question was why are we paying For a phone number and so that really Got me thinking and I do think that Companies that are offering free phone Services are going to see a lot more Increase in their user base over the Coming years just because people are Going to start to realize I don't need To be paying for this phone number I can Just as long as I have Wi-Fi make calls For free over that Data Network and I Don't need to be paying the cell phone Company a hundred dollars a month for my Phone number so I definitely like the Fact that Microsoft owns Skype and I Think that those internet voice services And video services like Skype and Messenger are going to increase in Popularity once people start to realize We don't need to be paying for this cell Phone we can just use these free Services available to us and then the Final Pro I have for Microsoft is the Xbox I like the Xbox because it really Is part of that stay at home culture That is emerging it's something I see Among my friends it's something I see Just in general people are ordering Their packages on Amazon they don't go Out anymore they are ordering food on
GrubHub and they're staying home and They're hanging out at their house and They're having some friends over but They're staying home and the Xbox is Perfect for that stay-at-home culture Because Not only is it a gaming system it's also An entertainment system and so that is What I like about Xbox is it's perfect For that stay-at-home culture that we're Seeing emerge and so I think the Xbox is Also a big winner here for Microsoft but Anyways those are the pros for Microsoft That is what I like about this company And now let's move on and look at some Of the cons so first of all the biggest One is that the bread and butter for Their business the Microsoft or Windows Operating system is no longer a big Growth piece for them and that's simply Because the PC is dying off the personal Computer and so they saw four percent Revenue growth quarter over quarter in The windows OEM which is the Windows Operating system so the Windows Operating system is not going to be a Big winner here for Microsoft anymore And I would expect that number to Continue to fall and those are going to Be declining Revenue numbers in the Future that would just be my expectation Just based on the fact that PC sales are Dying off so again another con here is The fact that the PC is dying and of
Course the uh Microsoft Office Suite of Products and the windows operating System are more or less Tethered to that PC but now we are seeing the apps and Whatnot and you're able to use your Office Products on your phone and also On the tablet so that was able to Pivot Into something else but because the PC Is dying off we have to realize that is That was a big piece of Microsoft Business but I know they have pivoted Out of that since then the other con I Have for them is that they're up against Two very big competitors number one Apple with the Microsoft Surface they're Directly competing with the Apple iPad And apple again is a very Innovative Company we've talked about them on stock Radar already and it's certainly not a Company I would want to be competing With and then second of all in the cloud Computing segment they're up against Amazon another company I would not want To be competing with if I was up against Amazon I would have a hard time sleeping At night and Microsoft is up against two Companies that are very Innovative and Are very good at what they are doing the Other con I have for Microsoft is one That I've also had for apple and it's That they come up against that law of Diminishing returns with their or Xbox Product than with their Microsoft Surface and it's that new models are
Only going to get so much better and the Product life cycle for these devices is Increasing just because of the fact that The older versions of these Microsoft Surfaces and the Xbox are still pretty Great pieces of equipment and so there's Not as much of an incentive or a need to Upgrade to the newest and greatest Product and so they are up again against That law of diminishing returns and that Is a con I have for Microsoft and then The other con I have for them here is That Bing and MSN are complete losers I Mean I completely forgot these things Existed until I did this analysis here But I went online and looked and Bing Has about 7.7 market share of search Engines and msn.com is the 60th most Visited website worldwide these are Terrible numbers here and so I know that They make some advertising Revenue here And that's under their more personal Computing segment from both Bing and MSN But that's no reason to be investing in Microsoft and I would expect to see Bing's market share continue to decline And I don't think anything is exciting Is really happening with MSN and so I Definitely prefer companies like Facebook and Google when it comes to the The digital advertising but understand That Microsoft has a very small amount Of that digital advertising space with Bing and MSN but there certainly are not
Taking away market share and they're not Going to be gaining market share in my Opinion for any reason in the future and Then finally the other con I have for Them is the fact that this is a stable Growth Company and that might not be a Con for you but if you're looking at Companies like Amazon and Netflix and You're looking for aggressive growth Stocks you're going to want to look past Microsoft because all they have to offer Shareholders is that stable growth and That dividend payment okay so that was The pros and cons of Microsoft stock now We're going to wrap up by talking about The barriers to entry for Microsoft and Primarily I see three different ones for Them first of all the biggest one is the Network effect when more and more people Are using a certain product to become Comes inherently more valuable just Because it becomes that industry Standard and the second one is the Familiarity with the products as far as A barrier to entry and of course I'm Talking about the Windows operating System The Office 365 products and Skype All of the software that they offer is One that all kinds of people are using I Can't think of a business out there That's not using the Microsoft Office Software there may be some out there That are using who knows Google Docs or Whatever Apple has to offer on their Mac
But it is definitely an industry Standard when it comes to businesses out There and so that is pretty much the Three barriers to entry that I see here With Microsoft first of all the network Effect second of all the familiarity we Have with that product base and third of All the industry standard I mean I can't Imagine a company being able to come out There and say hey we're going to sell You a word like software and something That's similar to excel especially when You can go out there and get this for Free on Google but people are willing to Still pay for the office suite of Products I don't see that being Disrupted anytime soon unless people are Just looking for a free alternative but Anyways guys that's going to wrap up the Beginning of this analysis here on Microsoft stock now we're going to jump Over and take a look at the financial Documents okay so now we are going to Take a look at some of the fundamentals Here for Microsoft and as always we're Going to start by looking at the assets So first of all we can see here that Total assets have grown every single Year since 2014 at an average rate of 12.2 percent per year so we're not Seeing any kind of explosive growth here With total assets except for between 2016 and 2017 when total assets grew 24.6 percent so up until that point
They've been a steady Growth Company but Not any kind of explosive growth but 2016-2017 we did see some explosive Growth there of total assets now cash And cash equivalence declined from 2014 To 2015 but they have increased every Year thereafter and cash in cash Equivalents grew 17.7 percent from 2016 To 2017 and 16.4 from 2015 to 2016 so They grew at a faster rate in the most Recent year than they did the year prior So what we can see here looking at that Is that Microsoft have been growing Assets at a rapid rate mostly between 2016 to 2017 but they're not what I Would classify as an Amazon like growth Beast but they are still a stable growth Stock in my opinion and they do have Some growth prospects for the future Moving on now let's take a look at the Liabilities so total liabilities have Increased every year since 2014 at an Average rate of 27.3 percent per year And so what we can gather from that is That total liabilities are growing at a Faster rate than total assets are Significantly faster rate and that is One thing I don't like to see in a Balance sheet is when liabilities are Growing faster than assets Now total liabilities grew 38.9 percent From 2016 to 2017 compared to a 24.6 Increase in total assets so year over Year there we saw total liabilities grow
Significantly faster than assets and Another thing that I don't like about This balance sheet is look at the Long-term debt from 2016 to 2017 we saw 87.6 percent growth in long-term debt For Microsoft in just one year so while Assets are growing at a steady rate here Liabilities are growing at a faster rate And if you're investing in Microsoft Stock I would keep an eye on the growth Of the long-term debt next we'll take a Peek here at the total revenue cost of Revenue growth profit and then the Income statement so gross profit has Been relatively consistent over the last Four years as we can see here was 59.7 Billion in 2014 60 billion the year After 52 billion the year after that and 55 billion in 2017 so there's no growth There at all with the the gross profit But it's been relatively stable gross Profit did however increase 5.9 percent From 2016 to 2017 but that would be a Lot more exciting to me if it hadn't Declined from 2015 to 2016. so net cash Flow from operations has increased every Year since 2015 at an average rate of 15.4 percent per year that is a big plus And net cash flow from operations Increased 18.5 percent from 2016 to 2017 So what we can tell here is that revenue Is consistent it's actually declining a Little bit but it's relatively Consistent but profitability is
Improving for Microsoft so that is where They get A Plus Moving on now we'll take A peek at the liquidity ratios and Profitability ratios and they have Excellent liquidity ratios so despite The fact that we did see some growth in Liabilities and long-term debt they Still have excellent coverage of their Debts here I'm very happy with these Numbers here a current ratio of 248 Quick ratio of 244 and a cash ratio of 206 percent So this company has very healthy Coverage of their deaths and they have Excellent liquidity ratios now as far as The profitability ratios go we can see How Microsoft is improving profitability So from 2016 to 2017 gross margin was Flat but we saw an increase in operating Margin to 25 from 24. we saw pre-tax Margin jump from 23 to 26 percent we saw A profit margin increased from 20 to 24 And keep in mind this was 13 in 2015 so They had a tough year in 2015 and then Pre-tax and after tax Roe also increased Significantly from 2016 to 2017 so we Saw an increase in the profitability for Microsoft in 2017. and now let's go Ahead and talk about that share Performance over the last year and over The last five years so Microsoft stock Has been very consistent over the last Five years growing 182 percent it had Been a fantastic bet over the last five
Years and over the last year Microsoft Stock is up 36.4 percent uh Significantly outpacing the turn on the Market now with a dividend of 1.78 Percent Microsoft stock is a great Income stock with growth potential and So if you're looking for a little bit of Both then you probably have nowhere else To look but Microsoft this is an Excellent pick here for both a Consistent dividend and growth potential So while Microsoft is not a growth Beast I do expect consistency from them in the Years to come and I think Microsoft is a Great addition to a Fang type portfolio Maybe a little bit less aggressive but It's good to have that dividend there as Well and being able to reinvest those Dividends and just get paid in two Different ways with this stock so now we Have some key financial notes here from The third quarter fiscal year 2018 Earnings report the most recent report Revenue was 26.8 billion and increased 16 percent and all of these figures are Quarter on quarter operating income was 8.3 billion and increased to 23 percent So very good growth there between Revenue and operating income net income Was 7.4 billion and increased 35 percent Diluted earnings per share came in at 95 Cents and increased 36 percent excellent Numbers here Revenue in the productivity And business processes was 9 billion and
Increased 17 percent as mentioned Earlier intelligent cloud with 7.9 Billion increased 17 percent quarter on Quarter and more personal Computing was 9.9 billion and increased 13 percent and Again what I like about this is that They're well Diversified as far as where The revenue is coming from it's uh Relatively even between their three Business segments here so now we're Going to take a look at some of the Highlights here from that earnings Report I'll go ahead and read through These here so first of all revenue and Productivity and business processes was 9 billion and increased 17 percent with The following business highlights office Commercial products and cloud services Revenue increased 14 percent driven by Office 365 commercial Revenue growth of 42 percent and I think that largely has To do with that subscription model they Have switched over to office consumer Products and cloud services Revenue Increase increased 12 percent in Office 365 consumer subscribers increased to 30.6 million and those are people that Are paying for an Office 365 Subscription every single month now LinkedIn Revenue increased 37 percent With continued acceleration in Engagement highlighted by LinkedIn Sessions growth of over 30 percent so People are I would imagine spending more
Time on the website Dynamics products and cloud services Revenue increased 17 percent driven by Dynamics 365 Revenue growth of 65 Percent so we're seeing some explosive Growth here out of the cloud computing Segment or cloud services segment of Their business and then moving in here To the intelligent Cloud Revenue came in At 7.9 billion and increased 17 percent With the following business highlights Server products and cloud services Revenue increase 20 percent driven by Azure Revenue growth of 93 percent and Enterprise Services Revenue increased Eight percent now as far as the revenue In more personal Computing it came in at 9.9 billion as we said and it had Increased 13 percent with the following Business highlights Windows OEM Revenue Increased four percent again we're not Really happy with that that's pretty Much flat as far as uh what we're going To be expecting for growth out of Windows OEM driven by OEM Pro Revenue Growth of 11 Windows commercial products And cloud services Revenue increased 21 Driven by an increased volume of Multi-year agreements and the mix of Products that carry higher in quarter Revenue recognition Gaming revenue Increased 18 percent very positive Number they're driven by Xbox software And services Revenue growth of 24 mainly
From third-party title strength and Surface Revenue the Microsoft Surface Revenue increased 32 percent against a Prior year comparable impacted by Product and of life cycle Dynamics and Search advertising Revenue excluding Traffic acquisition costs increased 16 Percent driven by higher Revenue per Search and search volume I think what That comes down to is advertisers are Beginning to have to pay a little bit More for digital advertising space here We have some other financial highlights From this report as well first of all Cash return to shareholders we always Like to see that happening so Microsoft Returns 6.3 billion to shareholders up 37 percent year over year with 3.2 Billion in dividends and a 3.1 billion Dollar share repurchase I always like to See companies putting their money where Their mouth is and buying back shares Off the public that means that they feel Those Shares are fairly valued and so That again is a plus operating expenses Operating expenses were 9.3 billion up 10 percent year over year driven by Investments in commercial sales capacity Cloud engineering and Linkedin again That might be why we were seeing some Increases in liabilities uh but that Again was over a long longer span of Time other income and expenses other Income was 349 billion driven by net
Recognized gains on investments and Income from dividends and interest Partially offset by interest expense Effective tax rate of 14 down 9.0 over a Year primarily due to the impact of the Tax cuts and jobs act tcja which reduced The U.S corporate tax rate they Benefited largely from that and that is Why we are seeing better earnings from Companies like Microsoft Capital Expenditures including assets acquired Under Finance leases were 3.5 billion in Order to support growth in our Cloud Offerings cash paid for property and Equipment was 2.9 billion and free cash Flow of 9.2 billion up three percent Year-over-year driven by higher Collections from customers following Billings growth partially offset by Growth in cash for property and Equipment and then finally here we have Some dialogue from that earnings report Microsoft Corporation today announced The following results for the quarter Ended March 31st 2018 we already went Through these numbers but it says here Our results this quarter reflected the Trust people and organizations are Placing in the Microsoft cloud the very First thing mentioned here Microsoft Cloud that's the biggest piece for Microsoft right now and this was Dialogue from the CEO of Microsoft we Are innovating across key growth
Categories of infrastructure artificial Intelligence productivity and business Applications to deliver differentiated Value to customers uh and then moving on Here it says with consistent investment And strong sales execution this quarter We have achieved better than expected Performance across all segments and then It said we delivered double-digit Revenue and operating income growth Driven by 58 growth in our commercial Cloud Revenue so this is the biggest Area for Microsoft in my opinion for Growth is cloud computing especially the Commercial applications and so that is The main reason why I would be Interested in Microsoft stock is for the Cloud computing but anyways guys that's Going to wrap up this analysis of Microsoft stock I hope you guys enjoyed It and I will see you in the next video Thank you
