Microsoft Corp ((MSFT - Free Report) put all speculations to rest by confirming the GitHub acquisition in after-hours trading, yesterday. The transaction, which involves Microsoft stock, is valued at approximately $7.5 billion.
On Jun 3, Bloomberg had reported that Microsoft is in advanced talks to acquire the open-source software development platform giant, GitHub. Notably, the company was last valued at $2 billion in 2015.
Shares of Microsoft have returned 40.2% in the past year, outperforming the industry’s rally of 30.1%. This outperformance can primarily be attributed to the company’s rapidly expanding efforts in AI and IoT based developments. Undisturbed focus on Azure remains a key catalyst.
Why is Microsoft Interested?
GitHub offers an open-source platform for coding enthusiasts and software developers. The platform brings developers together to work on projects without compromising on each other’s code. Founded in 2008, the “social coding” platform, which boasts of 28 million developers, has hosted around 80 million repositories, as of March 2018.
The San Francisco-based GitHub has an impressive list of customer base which totalled more than 1.8 million organizations and businesses, as of March 2018. Companies like Airbnb, SAP, IBM, Google, PayPal, Walmart, Spotify, to mention a few, have leveraged GitHubs’s platform.
The GitHub-Azure integration will further reinforce Microsoft’s commitment to its cloud-computing future as it aims to compete against the likes of Amazon (AMZN - Free Report) and fellow tech giants.
The tech powerhouse also stated that it projects the acquisition to be accretive to non-GAAP operating income in fiscal 2020. Investors should note that Microsoft expects the buyout to dilute adjusted earnings by roughly 1% in fiscal years 2019 and 2020.
Slowly but steadily, Microsoft is embracing the concept of open source (free software where code is written by software developers from all around the world) after being averse to it initially. The company has come a long way in its stance on the open-source database subject.
Ever since Satya Nadella took over as the CEO of Microsoft in 2014, the company has been coming to terms with the concept in an impressive way. Around 2016, the company started to support the Linux operating system, an open source operating system on its cloud computing platform Azure.
Microsoft is also committed to reorganize the company around its cloud-computing businesses and its Office business, instead of Windows. Last quarter, the company witnessed revenue figures of $26.82 billion, topping the Zacks Consensus Estimate of $25.71 billion. Furthermore, Microsoft’s Intelligent Cloud unit revenues, which comprise its rapidly growing Azure segment, climbed roughly 17% to reach $7.79 billion. Azure revenues alone soared 93%, after skyrocketing 98% last quarter.
The acquisition is likely to boost collaborative coding and consequently, is expected to bode well for innovations in software development.
Going forward, Microsoft anticipates GitHub acquisition to aid the company in becoming more future-oriented by encouraging more developers to create services and apps. This in turn will aid Azure compete better against other computing giants by being more appealing to customers.
Zacks Rank & Stocks to Consider
Microsoft currently carries a Zacks Rank #3 (Hold).
Aspen Technology, Inc. (AZPN - Free Report) and Citrix Systems, Inc. (CTXS - Free Report) are stocks worth considering in the same sector. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Aspen Technology and Citrix Systems is currently pegged at 10.1% and 9.1%, respectively.
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