From its Microsoft Windows line of operating systems and the Microsoft Office suite to its Internet Explorer and Edge web browsers, its flagship hardware products like the Xbox and the Microsoft Surface line-up of touchscreen computers, Microsoft is the software king that needs little introduction.
With products geared toward both consumers and businesses, it has shaped the way people work, becoming one of the forerunners of modern computing. And despite competing with the likes of Apple (AAPL), Amazon (AMZN) and other industry leaders, it is ranked in the 2020 Fortune 500 as one of the largest US corporations by total revenue, joining the so-called ’Big Five’ tech companies club.
A brief history of Microsoft
The American multinational technology company headquartered in Redmond, Washington was founded by high school friends Bill Gates and Paul Allen in 1975. Thanks to their mutual love for computer science, Gates dropped out of Harvard so that he and Allen could focus on developing and selling BASIC interpreters - a popular programming language - for the microcomputer Altair 8800. By 1978, the company’s year-end sales were over $1 million.
In 1980, Microsoft went on to strike a major deal with IBM, worth a whopping $50,000, to build the latter’s computer operating system. Named PC DOS, it became the go-to operating system for almost every PC on the market, while it went on to become one of Microsoft’s most profitable products ever.
A few years later, IBM requested Microsoft to develop a new operating system called OS/2. While it produced the said operating system, it also went on to sell its own alternative, which featured a graphical user interface that included drop-down menus, scroll bars and other features and which overshadowed OS/2 in terms of sales. The product’s success transformed Microsoft into the world’s biggest personal computer software company based on sales and made Gates the youngest billionaire at the age of 31.
Over the next decades, the software icon continued to innovate and diversify, debuting its Windows 95 that showcased the Start menu and other innovations. Selling 7 million copies in the first five weeks alone and an astounding 40 million copies in its first year, Windows 95 was amongst the company’s most successful releases. As internet usage took off, Microsoft introduced its web browser - Internet Explorer - while it entered the video game space with its Xbox console, which became an instant hit, selling 1.5 million units in less than two months.
Microsoft has also expanded its reach through a number of acquisitions, the largest being that of Skype Technologies for $8.5 billion in 2011, professional networking site LinkedIn for $26.2 billion in 2016 and code-sharing service GitHub in 2018 for $7.5 billion. When Satya Nadella took over as CEO in 2014, the company embraced cloud computing even further, a move which helped it emerge as a top competitor in the space, challenging products such as Amazon Web Services (AWS) and driving its shares to reach its highest value since December 1999. Then in 2019, Microsoft reached the trillion-dollar market cap, becoming the third US public company to be valued as such following Apple and Amazon.
Fun fact
The musical brains behind Window 95’s start-up tune known as The Microsoft Sound was composed by legendary musician, record producer and visual artist Brian Eno who has worked with the likes of David Bowie and U2.
When did Microsoft go public?
Microsoft went public in 1986 at $21 per share. Before the end of the trading day, the price closed at $35.50, selling some 2.5 million shares on the first day alone and raising $61 million in what some analysts have referred to as ‘the deal of the year’. Since then, the stock has climbed more than a hundredfold between 1986 and 1996, while on September 2, 2020, the stock closed at an all-time high at $231.65.
Its stock has split nine times since its IPO, undergoing six 2-for-1 splits and three 3-for-1 splits. Typically, a company would split its stock when its share price has become too high and it is looking to attract a wider pool of investors. Despite the splits, the market capitalisation before and after the split takes place remains stable, which means that although a shareholder now owns more shares, each is valued at a lower price per share.
How much would an investment in Microsoft’s IPO would be worth today?
The Microsoft stock has generated massive wealth for investors over the years. Following all splits, one Microsoft share would give you 288 shares, which would be worth $44,505 as of December 2019 when the stock was traded at $154.53.
What’s more, in 2003, the company began offering a dividend starting at $0.08 per share for that fiscal year, which increased to $0.16 per share the following year, while it switched from yearly to quarterly dividend payouts in 2005 with $0.08 a share per quarter and a special one-time payout of $3 per share for the second quarter of the fiscal year.
Is Microsoft stock a buy right now?
Microsoft's transition from traditional software to the cloud has been picking up steam and this has helped its stock rise too. In 2018, it reported revenues of $110 billion, but by 2020, this grew to $143 billion. Leading the way is its cloud-based services which have increased 23% to $21.4 billion, particularly boosted by Microsoft Teams and its AI systems powered by the Azure cloud.
In addition, its operating and net income has also been growing big-time from $35.1 billion and $16.6 billion in 2018 to $53 billion and $44.3 billion in 2020 respectively. Boasting impressive margins that also hint at the company’s spectacular Return on Invested Capital (ROIC) - a calculation used to assess a company’s effectiveness at allocating its capital to profitable investments - Microsoft boasts enduring growth and looks like a good stock for your portfolio.
What’s next for Microsoft?
Hugely benefitting from the work-from-home and learn-at-home trends that have been widespread during the COVID-19 pandemic, Microsoft is expected to continue earning big with forecasts for the December quarter suggesting the company will generate $39.95 billion in sales. What’s more, developments in its products and services in recent years are set to boost Microsoft’s demand further. For instance, in late October the company announced a partnership with Adobe Inc. and startup C3.ai to offer customer relationship management (CRM) software solutions by making use of artificial intelligence (AI). According to reports, demand appears to be outstripping supply following the unveiling of Microsoft's Xbox Series X and Xbox Series S, while it shared more details about its Azure space programme in conjunction with its latest strategic partnerships. As this momentum is expected to continue, there appears to be no hurdles in sight for Microsoft.
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