The market has high expectations for Microsoft, despite Windows 10 and desktops becoming less relevant in the consumer space. Bulls rely on Microsoft bringing in massive cash flow again when it reports quarterly results on January 26. Fundamentals keep getting better as Office365 subscriptions grow. MSFT failed on Windows 10 Phone and mobile, but succeeded in selling monthly services of Office on Apple and Android devices.
Xbox One S is one potentially dark spot for Microsoft. NPD Sam Naji thinks the hardware sales decline of 20% in consoles is due to lower unit volume demand and lower prices. Hi said ‘unfortunately the release of the Xbox One S and the PlayStation 4 Pro did not generate dollar spending growth.’
Microsoft may shed some light on how LinkedIn will fit in the company’s strategy. LinkedIn redesigned the desktop, a move that should more closely align the professional services and search site to Microsoft’s products. Spotify and Slack both have a desktop app, so LinkedIn’s refresh should restore user activity at the site.
Valuation
At a 30x P/E and 19x forward P/E, Microsoft is not an inexpensive stock, but if it meets a 42% EPS growth rate for the year, the stock will continue moving higher.