To say that many tech companies are poised to gain from the coronavirus is kind of like stating the obvious. To say that software companies will do better than hardware companies is also kind of like stating the obvious. To say that Microsoft MSFT will do better than most other tech companies is perhaps the most obvious of all. But that’s what has me writing about why I like Microsoft today.
There’s this thing about software that lets you make the most of whatever hardware you have. So if you’re stuck in a lockdown for example, what you can’t afford to do is buy new hardware. For one thing, the supply chain could be screwed up somewhere, so the parts may not be made in the same quantities as demanded. Second, with only minimal things crossing borders, there’s a chance it won’t reach you, even if it’s being made. Third, you may not feel great rubbing shoulders with folks at the store as you try to figure out the make and model you want.
But then comes software, which tells you, you know what? Just stay put. We have these mechanisms that can let you connect with those you need to, or upload stuff to a common place where others can access it, or collaborate, or click a button to video conference with people. Or if your work is too resource intensive, don’t worry. Just connect to the “cloud,” we have all the resources you might need. And just in case you’re in the mood for a break, we have all the entertainment and games you could possibly need.
What’s more, all the payment will be handled online, so you’re safe. That’s the bottom line, that tech companies can keep you safe until we figure this thing out.
Microsoft is at the center of this race to bring resources to workers stuck at home. And the company has been extremely forthcoming about the strength it’s seeing from the effects of the global lockdown. In a blog post, it said that Italy, which was fairly swamped with coronavirus cases and therefore implemented social distancing and shelter in place orders, saw a 775% increase in Teams' calling and meeting monthly users.
Teams now has 44 million daily users worldwide that generated 900 million meeting and calling minutes on Teams daily in a single week. What’s more, Windows Virtual Desktop usage jumped 3X and public Power BI to share COVID-19 dashboards with citizens surged by 42% in a single week.
There are also a host of other folks using its resources, including emergency services, reporting staff, medical supply systems, response teams for accidents, fires and other issues. The company is engaging with organizations like the UK’s NHS to build a data store that could house all related information at a single, secure location. It has also developed a Healthcare Bot service to create Covid-19 assessment chatbots to screen and advise Americans on matters related to the coronavirus.
The question that many are asking on the street is how much of this is sustainable? Is this just a one-off thing, with everything getting back to normal once the virus scare is no more? Experts’ opinions vary somewhat but the general sense is that while some could return to work as usual, companies that have had a taste of how things could be and having invested in the setup may not back off completely.
In fact, more than anything else, I feel that most companies, whether big or small, are going to be far more open to a work-from-home option than ever before. While it could have an impact on the level of control managers are able to exercise, it does eliminate some of the operating cost, which could be attractive to some.
Microsoft does have a hardware angle to it as well, because of the Windows attach rate, but that dead horse has been flogged enough already. In the new age, the way Microsoft serves across workloads can be termed as nothing but an overwhelming positive.
While it’s practically impossible to say what a stock will do exactly, the above reasons seem to indicate that that Microsoft will battle this storm well. But still, if you’re a numbers person, let me remind you that the company has $134 billion of cash and short-term investments on its balance sheet. It generates more than $30 billion in revenues every quarter and is set to grow that number 12.3% in its fiscal 2020 ending June.
Earnings are expected to grow 18.1%. This is particularly amazing when you consider its size and strengths. While estimates have inched down of late, it is hardly something to worry about considering that it has a solid surprise history, averaging 13.0% in the last four quarters. Despite all these positives, the shares are up a mere 1.7% this year.
Software stocks recommended by Zacks include Avid Technology AVID, Dassault Systems DASTY, Smith Micro Software SMSI, all of which carry a Zacks Rank #1 (Strong Buy). You could also dig into Zacks #2 (Buy)-ranked stocks American Software AMSWA, Cornerstone OnDemand CSOD or a host of others given here, because, as I was saying, software is a great place to be in at this time.
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