A Dominant Company Selling for 1999 Prices

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As the year draws to a close, I would like to focus on a leader in the technology industry that can be bought at the same as in 1999, Microsoft (NASDAQ: MSFT).

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Strengths:

  • Solid Revenue Growth: In 2008, Microsoft reported revenue of $60.4 billion; in 2012, the company reported revenue of $73.7 billion, representing 5.10% year over year annual growth, and this trend is projected to continue into the future with projections putting 2017 revenue at $94.7 billion



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  • Net Profit Margin: Microsoft currently possesses a net profit margin of 23.04%, displaying a company that is profitable and strong
  • Dividend: At the moment Microsoft pays out a quarterly dividend of $0.23, which annualized puts the dividend as yielding 3.35%
  • Brand Value: Coming in just behind Apple, Microsoft’s brand is valued at $54.7 billion by Forbes, however the company ranks first in the consumer perception category; both of which displays the power and value of the square logo
  • Reasonable Valuation: At the moment, Microsoft possesses a price to earnings ratio of 14.83, a price to sales ratio of 3.13, and a price to book ratio of 3.47, all of which indicate a fairly valued company, and as the chart below displays Microsoft can today be bought at a ten year discount

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Weaknesses:

  • Search Presence: Microsoft’s Bing has a 15.9% market share in the search engine industry, not even coming close to Google’s dominant 66.4% market share; Microsoft has spent nearly $10 billion up keeping and promoting their expensive attempt to capture Google’s business
  • Debt: Currently, Microsoft possesses $10.7 billion of debt on their balance sheets, a major downside to the business
  • Mobile Presence: Mobile is a major weak spot for Microsoft, with Apple and Google dominating the industry and Microsoft’s Windows platform having only a 3.6% market share as of September 2012

Opportunities:

  • Windows 8: Microsoft’s new operating system has been called drastic, however this upgrade gives the company the opportunity to maintain its dominance in the operating system industry, one which it has a 81.75% share in
  • Surface: This drastic response to the growing popularity of tablets should put Microsoft’s foot in the tablet market, and help fuel growth into the future
  • Acquisitions: Since 2000, Microsoft has acquired over 50 companies, with the most recently being StorSimple Incorporated in 2012, and further acquisitions should fuel future growth
  • Dividend Growth: Since implementing their dividend program in 2003, Microsoft has consistently raised its dividend payouts, and projections exdept this trend to continue into the future

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Threats:

  • Competition: Microsoft operates in one of the most competitive industries in the world, with the largest and most powerful company competing against Microsoft, and this fierce competition can cut into Microsoft’s profit
  • Supply Line Problems: Microsoft’s supply chain provides them with the thousands of pieces it requires to make their products, and a disruption in this supply chain could hurt Microsoft
  • Piracy: Just as piracy is a major threat to the music and movie industry, it is also a major threat to Microsoft’s business, as much of their business is in the software space
  • Stagnant Global Economy: When the global economic landscape is facing as much uncertainty and stagnation as it is today, companies are less willing to pour money into reinvesting in their company, including purchasing new technology (tablets, computers, operating systems), which could hurt Microsoft’s growth

Competition:

Major publically traded competitors of Microsoft include Apple (NASDAQ: AAPL), Google  (NASDAQ: GOOG), Oracle (NYSE: ORCL), and SAP (NYSE: SAP). Apple competes against Microsoft in the computer, tablet, and mobile industry, is valued at $488.53 billion on the market, and pays out a dividend yielding 2.04%. Google competes with Microsoft in the search engine and mobile industry, and is valued at $235.15 billion on the market. Oracle competes in the software industry, and is valued at $162.69 billion on the market. Finally, Sap competes with Microsoft in the software industry, is valued at just under $100 billion, and pays out a dividend yielding 1.19%.

The Foolish Bottom Line:

Microsoft is dominant in many of the industries it operates in and possesses solid revenue growth and a solid and growing dividend. Over the past ten years, Microsoft’s revenue has flourished, however the stock’s price has remain steady, leaving the company at a ten year discount. To the long-term investor, Microsoft is a tremendous investment, and should flourish if it is able to innovate its products to the changing demands of the consumers. 

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makinmoney2424 owns shares of Apple. The Motley Fool owns shares of Apple, Google, Microsoft, and Oracle. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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