Microsoft, which generated US$92 billion in sales in fiscal 2016, has been a household name for more than four decades because just about everyone has used Microsoft software.
Ironically for a company so well known for its consumer-targeted Windows software, games and entertainment Xbox and Bing search engine, the majority of Microsoft’s earnings come from products sold to businesses. These leading products include Microsoft Office (about 45% of earnings) and data-centre products (about 35% of earnings).
All up, we estimate that about 80% of Microsoft’s earnings are sourced from its entrenched business customers. The Windows PC operating system remains critical to business operations globally, Microsoft Office has more than 90% market share of workplace-related software globally, while Microsoft’s data-centre-software products are protected by barriers such as the cost of switching to competitor products. To keep businesses with Microsoft, the company has built hyper-cloud Azure that is proving popular.
While the characteristics of Microsoft’s smaller consumer business are less attractive, the company established by Bill Gates and Paul Allen in 1975 is trying to make this arm more profitable by offering services such as the app store, content, gaming and search advertising.
But it’s Microsoft’s entrenched enterprise software business that is expected to drive the bulk of earnings in coming years and keep the company among the world’s biggest stocks by market cap.
Important Information: This material has been prepared by Magellan Asset Management Limited (‘Magellan’) for general information purposes and must not be construed as investment advice. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer or invitation to purchase, sell or subscribe for in interests in any type of investment product or service. This material does not take into account your investment objectives, financial situation or particular needs. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. This material and the information contained within it may not be reproduced or disclosed, in whole or in part, without the prior written consent of Magellan. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. Nothing contained herein should be construed as granting by implication, or otherwise, any licence or right to use any trademark displayed without the written permission of the owner.
Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this material may contain “forward-looking statements”. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements.
Certain economic, market or company information contained herein has been obtained from published sources prepared by third parties. While such sources are believed to be reliable, neither Magellan or any of its respective officers or employees assumes any responsibility for the accuracy or completeness of such information. No person, including Magellan, has any responsibility to update any of the information provided in this material.