Microsoft Corporation (NASDAQ:MSFT) is getting back on track. And investors have increasingly turned positive towards the company’s strategy and future, said RBC Capital Markets analysts Matthew Hedberg, Matthew Swanson and Dan Bergstrom. During a talk with investors and analysts, the company management shared its strategy and future plans. RBC Capital Markets has a Sector Perform rating on the stock with $44 price target.
Device business is critical to Microsoft’s long-term success
After discontinuing support to Windows XP, less than 10% of worldwide PCs run on that operating system. Microsoft Corporation (NASDAQ:MSFT) management said that the post-XP upgrade was beneficial. The consumer PC sales are getting “less bad” while enterprise sales are stable. Many investors wanted to know how much the software giant will spend to boost volume at its recently purchased handset business from Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). Microsoft said that the device business is critical to the company’s long-term success, and it will generate cost savings.
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Spending on the handset business doesn’t mean Microsoft Corporation (NASDAQ:MSFT) can’t invest in more lucrative businesses like cloud. The company management said that it needs to invest in hardware to maintain its share of enterprise spending. The Office 365 has proved to be a massive success. It has a run rate of $2.5 billion in the enterprise sector. Plus, the franchise has over 4.4 million consumers, meaning about $440 million in annual revenues.
Microsoft says cloud has a higher lifetime value
Talking about its cloud strategy, Microsoft Corporation (NASDAQ:MSFT) executives said that the company aims to improve its reach, frequency and yield in the rapidly growing cloud business. Microsoft can reach more small and mid-size business with its cloud products, and it results into higher lifetime values. Meanwhile, its flagship Azure can help the company attract a bigger portion of the enterprise IT spending, even at a time when companies are slashing their IT budgets.
Investors argue that Microsoft Corporation (NASDAQ:MSFT)’s focus on consumer markets doesn’t make sense because the enterprise market looks more valuable. But RBC Capital Markets says that, if the consumer segment isn’t a huge drag, the enterprise business can still boost long-term value.