Daily Brief: As Microsoft Posts Strong Earnings, Big Tech Just Keeps Giving Investors Reasons To Buy

Daily Brief: As Microsoft Posts Strong Earnings, Big Tech Just Keeps Giving Investors Reasons To Buy

about 3 years ago3 mins

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At least those awkward virtual company socials have been paying off for someone: Microsoft reported better-than-expected quarterly earnings late on Tuesday, and its stock initially jumped 6%.

What does this mean?

With the world spending all day, every day in their own homes, Microsoft’s cloud computing business, “productivity” segment (think Microsoft Office and LinkedIn), and personal computing division (think XBox and Windows) have unsurprisingly been in high demand. And it showed: all three divisions – which make up roughly a third of sales each – did better than expected, with the company’s cloud business even growing faster than it did the quarter before. Put it all together, and Microsoft’s profit beat expectations too. Maybe investors should’ve seen that coming: the company’s been on a long run of form, only falling short of analysts’ expectations four times since 2010.

Microsoft products and services growth

Why should I care?

Zooming in: Everyone knows its name.

The pandemic hasn’t just boosted demand for Microsoft’s products: it’s lowered its operating costs too. The tech giant’s far-reaching name recognition, after all, makes it a go-to for home-based businesses, which means it hasn’t needed to pump as much money into marketing as normal. Of course, the question now is whether it’ll hold on to that captive audience when we’re all allowed outside again…

Microsoft shares hit an all-time high on Tuesday

For markets: There’s life in the old dog yet.

The incoming economic recovery is expected to benefit cheaper-looking “cyclical” shares the most, which might be why Big Tech has underperformed the US stock market over the last three months. But Netflix’s better-than-expected results last week might’ve reminded investors there’s still plenty of growth in tech stocks to be had, and they’ve been piling back in ever since. That's worked out especially well for Microsoft: its share price is now just shy of all-time highs, and there isn't a single analyst at a major investment bank who recommends selling the stock.

Keep reading for our next story...

UBS Announced It'll Return Billions To Shareholders

UBS image

UBS announced fourth-quarter results that were better than expected on Tuesday, and its investors certainly got what was coming to them: uh, more money.

What does this mean?

As the world's biggest wealth manager, UBS makes most of its money by looking after and charging fees on rich people’s piles of cash – piles that tend to get even bigger when stock markets surge. The bank boasts a pretty significant trading business too, which does especially well when there’s a lot of uncertainty in the markets – like, say, when there’s a pandemic or a once-in-a-generation election. In other words, last quarter was practically tailor-made for UBS’s two biggest businesses, which might be why the company’s profits grew by 137% compared to the same time the year before. Throw in an announcement that UBS will be buying back $4.5 billion of its own shares, and it might come as no surprise investors pushed the bank’s stock up.

Share-price return
Source: The Wall Street Journal

Why should I care?

For markets: European banks are getting jealous.

UBS is rewarding its shareholders with more than just share buybacks: it’s also one of the few banks in Europe that paid out its full dividend last year. That might irk its European rivals, which were banned from paying dividends altogether by the European Central Bank (ECB) when the pandemic broke out – even as Swiss regulators were more lenient. That ban’s been lifted now, but the ECB’s still urging its banks not to throwing round too much cash – clearly a worry UBS doesn’t have.

UBS financial highlights

Zooming in: The art of the buyback.

There are a few reasons a company might want to buy back its own stock, but in UBS’s case, it’s a good way to give back to its investors. See, when a company buys its shares, it slashes the number of them available on the stock market. That means each remaining share represents a greater portion of ownership, which should then boost the company’s overall share price.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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