Is it time to sell Microsoft or short the stock in trading if you do not own it? The Wall Street Journal writes about Microsoft’s Cloudier Future. Microsoft has had a new CEO for a year during which time the stock rose thirty percent. Then Microsoft released second quarter results and poor projections for the year to come.
The stock tumbled by 9% Tuesday afternoon, on pace for its worst single-day drop in 18 months, following Monday’s release of fiscal second-quarter results and the company’s accompanying outlook.
The midpoint of Microsoft’s revenue outlook for the current fiscal quarter is nearly $3 billion short of Wall Street’s consensus forecast. Some of that relates to currency effects and struggles in China and Japan.
But some reflects the fact that Microsoft is transitioning a rather large business to a new model, and not getting any uplift from a stagnant personal computer market in the meantime.
So investors are left with a quandary: Is Microsoft an aging tech giant that is scrambling rather late in the game? Or is it a fast-growing cloud business that also generates sizable profits in a legacy business?
The question the Journal poses is whether to look at the stock as a failing tech company or to focus on it promising cloud business and huge legacy business profits.
Bad News
Microsoft does not like the prospects for the rest of 2015. Microsoft warns of soft sales and incomes as they transition to a cloud business and otherwise adjust their business model.
The first reason, mentioned repeatedly, was that businesses are no longer frantically upgrading their XP PCs anymore. Microsoft ended support of XP last year, forcing all companies using the old operating system to move to a newer version already. Most moved to Windows 7. But now, buying patterns have returned to their normal “pre-XP” levels. That means that Windows sales to businesses will shrink compared to the boom going on last year.
The company mentioned several times on its earnings call that it’s having trouble with sales in the big growth market of China. It is also struggling in Japan. The strong dollar means unfavorable foreign-exchange rates compared with last year. That will hurt revenue to the tune of 4%, Microsoft warned.
The future for Microsoft is their cloud computing business which they are financing to a tune of $1.5 billion this year. There will be a lag between giving away these services to entice users and getting to charge at a later date. The question is if it is time to sell Microsoft or short the stock while all this is happening and wait to buy at a later date?
Not Just Microsoft
It was not just Microsoft that was hit recently. The strong dollar has hurt sales and services for other companies as well. Caterpillar fell seven and a half percent on poor earnings forecasts. Bloomberg notes the Caterpillar plunge in stock price.
Caterpillar plunged 7.5 percent after forecasting 2015 results that trailed estimates as plunging oil prices signal lower demand from energy companies.
The dollar is too strong and low oil prices have reduced demand for Caterpillar equipment in the energy sector. It is not only time to sell Microsoft but many other stocks as well.
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