This IT company was once considered a relatively slow-moving tech enterprise. However, over the past five years, its stock nearly quadrupled since CEO Satya Nadella’s “mobile first, cloud first” strategy paid off. Its acceleration in digitization trends and cloud adoption geared towards 2021 is bound to favor Microsoft Azure over its rivals. Microsoft’s corporate mantra of “intelligent cloud” has allowed it to remain at the forefront of computing for consumers.
Citi’s analyst, Walter Pritchard upgraded Microsoft from “Neutral” to “Buy”, setting its target increase from $229 to $272. He predicts that the increased reliance on digital technologies mentioned above will likely drive further adoption of Office 365, ultimately driving share outperformance in 2021. Pritchard also noted that Microsoft’s year-over-year growth kept its pace while multiple peers had lagged behind. Apart from Citi, Morgan Stanley’s analyst Keith Weiss has also increased Microsoft’s price target from $249 to $260.
Microsoft’s Game Plan
Aside from the company’s strategy to grow its cloud services, Microsoft has another winning factor that came into play when it comes to the building blocks of their success to stay afloat. Let’s not forget how stay-at-home measures coupled with the holiday shopping season has driven stronger demand for home entertainment. The timely launch of the new consoles, the Xbox Series X and Series S in November have reportedly sold well. Although the Xbox sales of 49 million consoles are in third place behind Sony’s PS4s that sold 115 million units, and Nintendo’s shipments of 74 million Switches; Microsoft plans to close the gap in the new console generation with three strategies.
First, selling the Series S at a competitive price of $300 could attract more gamers. Second, a subscription plan that allows for unlimited game downloads of over 100 games. Lastly, Microsoft recently acquired ZeniMax, the game developer of Fallout, Doom, and The Elder Scrolls. They intend to launch ZeniMax’s future games as Xbox exclusives. All these strategies could strengthen Microsoft’s gaming business, which generated 8% of its revenue in fiscal 2020.
The company’s resilient productivity portfolio could raise the stock to new heights next year. Its stock may seem pricey right now, but its strengths justify its higher valuation and remain a solid long-term investment for 2021.