Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

This Microsoft Corporation Deal May Trump Office for iOS

By Tim Brugger - Mar 29, 2014 at 4:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A lot of good news is coming out of Redmond of late, but this announcement may take the cake.

It's taken a while, but patient fans of Microsoft ( MSFT -1.79% ) are finally beginning to see some signs of life, both from a new product and services perspective, as well as its stock price. By no means are new CEO Satya Nadella and team done with Microsoft's transition to a leading mobile, cloud, and big data provider, but there are multiple signs that strides are being made.

Naturally, there are still those who aren't buying what Microsoft's selling. Though several analysts are finally recognizing Microsoft's advancements in key growth areas, a majority remain unconvinced. Too bad for them, and for the clients that heed their advice.

First, some good news
In what was widely hailed as a successful debut as Microsoft's new number one, Nadella made his first presentation a couple days ago, showing off Microsoft's new Office for iOS. In a world of bring-your-own-device to work, cross-platform apps have quickly become a necessity, not a nicety. And that's what makes Office for iOS such an intriguing move on Microsoft's part. If Nadella gleans much of the praise for an app that's most certainly been in the works longer than he's been CEO, so be it.

Nadella's first shot at the spotlight also served as a precursor of things to come, as much by what he didn't say as what he shared about Office for iOS and the future of Microsoft. Noticeably absent from Nadella's introduction was a Windows software demonstration. Microsoft isn't a PC company any longer, which Nadella made clear by forgoing the use of a PC during his presentation. Instead, Nadella focused on the importance of cross-platform apps to fuel future growth.

Now, more good news
Over half of the analysts covering Microsoft are stubbornly clinging to their respective versions of a "hold" rating, despite a nearly 41% jump in share price the past 12 months. This, however, should change, considering the average target price of the Microsoft-haters is $38.84 a share, nearly 3.8% below Friday's close. Other analysts are coming around, including a couple that recently raised Microsoft's price target to $44 a share.

Somewhat lost in the hoopla surrounding Nadella's first presentation as CEO and the Office for iOS introduction was news of what could be a game-changing cloud deal for Microsoft. Already growing by leaps and bounds -- cloud-related revenue more than doubled last quarter -- the deal Microsoft inked to bring cloud services to Chinese consumers could be absolutely huge. It's the first partnership of its kind involving an "outsider," and it's been a long time coming.

Some background
The process of bringing cloud services to Chinese consumers began about a year ago, when Microsoft certified over 100 techs of China data service provider 21Vianet. The partnership limited what Microsoft could offer Chinese business customers, but turned out to be an important first step to establish a more expanded relationship in the future. Thankfully, the future is now.

With the deal in place, 21Vianet can begin offering its business customers Microsoft's cloud platform Azure. With a domestic Azure customer base that includes over half the Fortune 500, China businesses that opt for Azure will find themselves among some pretty good cloud company.

Final Foolish thoughts
Opening the Office door to the millions of iOS users, and the incremental revenue that will come from the new app, certainly warrants all the press that Microsoft's received these past couple of days. Add to that a successful introduction of Microsoft's new CEO, and it's easy to see why its stock price is bumping up against its 52-week high of $40.99 a share.

If anything, analyst price targets for Microsoft in the mid $40 a share range are on the low end for mid and long-term investors. Yes, Microsoft stock is up 40.9% the past 12 months, which may be worrisome for value investors. But remember, its stock price had been depressed for so long, you could argue Microsoft's recent run has simply brought its stock back to ground zero. Microsoft remains a solid long-term alternative, especially when you consider the potential of bringing the cloud to China.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$330.59 (-1.79%) $-6.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.