Exploring Microsoft Windows: A Comprehensive Company and Stock Analysis

Microsoft Windows Company and stock review

A short joke

It doesn’t matter if you are a Macintosh or an Android lover. If you breathe, then you will have the unique experience of a Windows failure. This is so common that it comes with the product as a feature. The so-called “blue screen of death” (BSOD) may have changed over time, but it has been always with us. I believe Microsoft has a special department just to create the arts and request patents worldwide. If your Windows doesn’t fail, you may be using a pirate (and maybe more advanced) product. Don’t do that. Shame on you.

Even though you can’t fight death, taxes, or BSOD, you are eligible to launch an assistant wizard to help you go through what may have caused the BSOD.  Maybe you did something wrong, installed a faulty driver, or clicked on that strange proposition from a Nigerian prince that was dying but would like to transfer to you, a complete stranger, the amount of $10 billion dollars. Shame on you again. It’s not Microsoft’s fault. But hey… don’t worry. If the fault is yours, the assistant wizard won’t tell you because it will have absolutely no idea about what could have happened. Shame on him. I believe Microsoft has a special department just for the assistant wizard… well, I already told you about this.

Microsoft Windows and market share

Despite the memes and all of the problems Windows may have, we are talking about a giant. Windows 95 was one of the most important operating systems ever launched and the Windows’ worldwide dominance is astonishing. And more than that: Microsoft is not just about Windows.

Take a look at the “Global market share held by operating systems for desktop PCs (2013 – 2022)” from Statista. Can any other operating system dethrone Windows? I don’t think so.

Windows is not the only service

As I already told you: it’s not about Windows. Office, Server, and Cloud Services are growing up fast. We are going through the 4th industrial revolution where the company’s infrastructure will not be physical but digital. Those who rule the clouds will rule the world (I’m not talking about God here).

Let’s take a look at Figure 2: the Microsoft revenue by major product lines.

Figure 2 – Microsoft revenue by major product line. Source: Tech Behemoths

The Cloud Service is dominated by Amazon AWS followed by Azure (Microsoft) and weaker competitors in this field (at least by now) like Google and Alibaba. But the avenue of growth for Microsoft doesn’t stop here. There are some products that we can’t forget:

  • Microsoft Teams: This application became really popular after COVID. Its revenue has grown almost 73x between  2017 and late 2021;
  • Microsoft Xbox: It’s hard for them to fight Sony’s PlayStation or to beat the family (and mainly kids) appeal and huge success of Nintendo’s Switch, but gaming is always a relevant sector (and mainly Minecraft, which is a gold mine);
  • LinkedIn: The best place to tell everyone that you’ve done something that will change the course of humanity forever when you only changed the paper on the printer. The best and most prepared will never be fooled by LinkedIn posts, but Microsoft doesn’t care. Revenue is growing and social media is now a matter of survival.

Tech giants like Microsoft are always interested in cryptocurrency advancements and especially Web3. The company has investments in projects like ConsenSys and it’s planning to expand the scope. Even though Bill Gates, the former CEO, is publicly against Bitcoin, the company is already accepting digital currency as a payment method for apps, games, and some other content. The advantages of crypto payments are covered in this article, by the way. Based on its balance sheets and official reports, there are no plans (at least for now) to hold the digital currency as a value reserve.

MSFT stock

What the MSFT price can tell us right now? As already said in past articles: the price itself says nothing. We need to understand the connection between the price and other simple metrics such as profit and cash flow. Let’s do it then:

Figure 3 – MSFT – Price, P/CF and P/E ratios. Source: Developed by the author using TradingView

Even though we can always dive deep into numbers and the company’s history to find out more about what the charts are telling us, we can keep it simple here and make some assumptions. I don’t know about you, but I’m seeing a clear relation between the price per stock and the P/CF ratio. We can’t say it for sure with this simple analysis, but it looks like the cash flow growth can be a good predictor for the price, much better than the profits. This can happen due to accountancy rules and adjustments made on the income statements that normally will impact more the net income than the cash flow.

Should we format the drive?

Considering the Information Technology Sector, more specifically the Systems Software industry, MSFT isn’t cheap. The company is being traded by metrics much higher than the sector’s average. The current P/CF ratio is about 15% higher than the average. Other metrics like EV/Sales (Enterprise Value divided by Revenue) is about 3 times higher than the average.

When we look at Microsoft and see its metrics being traded 15%, 30%, and 40% over the sector’s average we need to ask ourselves: does Microsoft deserves this premium? In my humble opinion: it does. The company isn’t recession-proof, but we are approaching a more digitalized world every day and companies like Microsoft can lead the way.

The company has valuable products and solutions for almost everything. When it doesn’t, the company will aim to acquire someone who does. All things considered, Microsoft has good conditions to keep expanding its cash flow much above the sector’s median and reach P/CF higher than 30x. Great upside potential in the mid-run.

Maybe there is something capable of dethroning Windows: a newer Windows.