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How Would Microsoft Perform During a Recession?

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Two of our experts give their thoughts on how the tech giant would hold up.

Would Microsoft's (MSFT 2.75%) recurring revenue streams help the company thrive during a tough economy, or would its business suffer as consumers and businesses cut back on spending? In this Fool Live video clip, recorded on Dec. 6, contributors Danny Vena and Toby Bordelon debate how the tech giant would perform. 

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Danny Vena: The reason that I ranked it No. 8 [out of eight large-cap stocks] is because if you look at how things played out in the 2007-2009 recession, and that may not be the appropriate benchmark anymore. But if you look at how it did during a prolonged recession, it was one of the two dead last companies on our list compared to how the S&P 500 did. I think the reason for that it's done a little bit better last year, was because of the fact that, when you had consumers, that it looked like a lot of people were going to lose their jobs, their consumer segments sank but their businesses held up.

But then when it turned out that not too many consumers lost their jobs, at least not the ones that wanted to work. Their consumer-facing segments like their laptops, and their portables, and their gaming, all held up pretty well. I think for me mostly it was the business-facing element. A lot of it has got to do with, in a recession companies start cutting back a little. Maybe some of those ancillary or add-on services that Microsoft offers in addition to its cloud, companies will cut back on. Again, I think that will be short term in nature. I think that it's a volatility issue more than a risk issue for Microsoft. But I bought Microsoft and I will hold Microsoft through any recession.

Toby Bordelon: Yeah. I could just add a couple points on that. We have a new CEO since the last time that recession.

Vena: And a new cloud business.

Bordelon: A new cloud business is right, so that's the other thing. Azure was announced in 2008, launched initially 2010 but it didn't even actually become Azure, they changed the name in 2014 when they were really getting it going. I think they're in a different situation here and so you have to ask yourself, will businesses cut back on spending in a recession? Oh sure. But how many businesses are so committed to the cloud and have so much of their operations wrapped up in that right now?

Where that's going to be almost impossible for them to stop that. You could say OK, maybe I go through different provider and that's certainly possible. There is some stickiness here, but it's possible. But I'm not sure that it's not a case that we have to suspend this money, like your other option, maybe instead we give it to Microsoft, we give it to Amazon or we give it to Alphabet or someone like that. I don't know if that does much for you in terms of saving you money. It might slow growth like what we were talking with Shopify, it might slow future growth, but I'm not sure that it's going to lead to a reduction in revenue necessarily. I think there's just a much stronger business than they were during the last recession. But they certainly won't be immune, I just think they'll hold up a lot better than some of the others.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena owns Alphabet (A shares), Amazon, Microsoft, and Shopify and has the following options: long January 2023 $1,140 calls on Shopify and long January 2023 $1,160 calls on Shopify. Matthew Frankel, CFP® has no position in any of the stocks mentioned. Toby Bordelon owns Alphabet (A shares), Amazon, Microsoft, and Shopify. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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