Microsoft: An agile software behemoth

One of the most instantly recognisable brands in the world, Microsoft has enjoyed a long history of innovation as the technological landscape has changed around it.


Today the company operates across various industries, from computer software and hardware, to social networking services, video games, internet programs, corporate venture capital, consumer electronics and the evolving cloud computing sector.


Founded in 1975 by Bill Gates and Paul Allen, the company has made significant progress since its IPO in 1986 when it opened trade at US$21 per share. Having recorded strong growth since 2010, the Nasdaq-listed multinational has seen its share price explode to life, chalking up a series of all-time highs.


Microsoft now holds the mantle as the world’s most valuable publicly traded company, having previously held the title until it was topped by Apple (APPL). It is also just one of three companies which has surpassed a US$1 trillion market cap, with the aforementioned Apple and Amazon (AMZN) rounding out the trio. So with that, what room is there for the share price to continue growing?


Scope to capture lucrative market share


The multinational has made no efforts to shy away from its focus on the Commercial Cloud segment, which includes its Azure infrastructure services and Office 365 software. This division, which has been Microsoft’s best performing for growth in recent times, continues to show signs of strength.

Revenue growth in the Azure category is tracking 68% year-on-year in constant currency, while Office 365 sales were up 31%. In total, the segment grew 39% to US$11bn in revenue. Although Azure growth may be down slightly on previous results, where it posted 73% and 76% increases, there is still significant upside for the Commercial Cloud segment to become a key driver of the company’s share price, particularly on the back of swelling margins, which rose 6 points to 65%.


Microsoft has also gained some market share against the market leader Amazon Web Services, moving up from 10% to 13% market share. The company is well positioned to continue this ascent, while also vying off competition from Alphabet’s Google (GOOGL) thanks to its formidable relationships with enterprises, its status as an on-premises software supplier, go-to-market strategy, and the bundling of its other integrated network solutions (e.g. Office 365). In a positive sign, the multinational has just completed its largest ever Azure enterprise deal, signing up AT&T.


Profound corporate positioning with diverse product folio


Much has been made of Microsoft’s concentrated focus on the Commercial Cloud sector, however, the rest of the company is firing on all cylinders at the moment. For each of its major three segments, the business is posting revenue results that are a record, or the best in many years.


The Productivity and Business unit, including the company’s Office suite, grew 14% to US$11bn. The More Personal Computing segment, which includes windows software, surface hardware and Xbox products, grew 4% to US$11.3bn. It is clear that the Windows platform continues to grow at steady levels, proving that the format is entrenched deeply into businesses and households around the world. Even global shipments of PCs have edged up 1.5% despite prevailing concerns around competition and innovation.


Meanwhile, the US$27bn acquisition of LinkedIn in 2016 is bearing fruit, with its 610m users now helping account for 5% of Microsoft’s entire revenue. As this grows there is sufficient reason to believe it can spur improved revenue and margins for the company, all the while balanced by the solid base from its legacy divisions.


Effective strategic realignment


At a strategic level, Microsoft has shown that it is not weighed down like many other multinational businesses. Instead, it remains an agile business that has been able to redefine its strategic direction and adapt to industry changes.


One of the most prominent aspects of this is the company’s transition to a software subscription model in ord