Daily Brief: Microsoft Isn’t Quite $2 Trillion Big, But It’s Working On It

Daily Brief: Microsoft Isn’t Quite $2 Trillion Big, But It’s Working On It

almost 3 years ago3 mins

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Microsoft must be wearing sweats, because all this WFH has made it very comfortable: the tech giant reported better-than-expected quarterly earnings late on Tuesday.

What does this mean?

With so many workers still trapped between their own four walls last quarter, it was no major surprise to see Microsoft’s three businesses – which are all WFH-friendly and make up roughly a third of sales each – doing so well. For starters, its cloud computing business saw sales climb by a better-than-expected 23% compared to the same time a year before. Its productivity business got a boost too, with chat-based collaboration platform Teams helping drive a 15% uptick in sales. And last but not least, Microsoft’s personal computing division: it benefited from the wider industry’s fastest sales growth in two decades last quarter, and its sales jumped 15%.

Microsoft product and services growth

Why should I care?

For you personally: You can run from Microsoft, but you can’t hide.Still, Microsoft’s going to have to wait to hit the coveted $2 trillion valuation for the first time: investors initially sent its shares down 4% despite the strong results. You might want to keep an eye on that benchmark too, even if you’re not directly invested in its stock. See, the bigger the firm gets, the more disproportionate its influence over US stock market indexes becomes. So if you’re invested in an exchange-traded fund passively tracking one of those indexes, your investments might take a hit when Microsoft’s stock does.

Microsoft stock
Source: Google Finance

The bigger picture: You can’t sit with us, Microsoft.

Microsoft announced its biggest buyout since LinkedIn earlier this month, in the form of a $16 billion bid for speech-recognition company Nuance Communications. But money can’t buy everything, and the tech giant missed out on the chance to beef up its gaming business when Discord rejected its $12 billion acquisition offer last week. The video game chat platform, it turns out, has bigger ambitions – namely a mooted initial public offering that’d value it at as much as $18 billion.

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Google-Parent Alphabet’s Earnings Beat Expectations

Alphabet image

Alphabet’s ad business basically sells itself these days: the Google parent reported better-than-expected quarterly earnings late on Tuesday, and its stock initially rose 4%.

What does this mean?

Businesses were quick to slash their ad budgets to save cash when the pandemic landed last year, but they reverted to old habits almost as quickly once the global economy started finding its feet. That set the bar high for Alphabet, whose ad business represents 30% of the US’s digital advertising spend – not to mention the majority of the tech giant’s income. But the company comfortably soared past expectations: its first-quarter revenue came in 7% higher than analysts’ forecasts, and its profit 66% higher.

Alphabet shares set new record

Why should I care?

The bigger picture: What goes up might come down.

Google sits alongside Facebook and Amazon as one of the big three digital advertisers, which collectively increased their share of the US digital ad market from 80% in 2019 to almost 90% last year, according to research firm GroupM. That’s drawing unwanted attention from US regulators, which are gunning to spin off the business segments of this so-called “triopoly” into separate companies – in turn limiting their influence over the global digital ad market.

Google advertising revenue

For markets: Alphabet’s still shooting for the moon.

Alphabet is made up of a core money-making platform – Google – and a mishmash of high-risk, high-reward moonshot projects. And that whole “money-making” thing might be why plenty of investors value the company based on Google’s earnings alone. But some longer-term investors reckon those moonshot projects – self-driving vehicle company Waymo, AI firm DeepMind, and life sciences division Verily – are going underappreciated, and their potential unreflected in Alphabet’s share price. By exactly how much remains to be seen, but according to our math, those companies could be worth north of $100 billion…

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