Photo: Associated Press
Coming out of Microsoft’s analyst day, Jefferies analyst Katherine Egbert offers up this take on the company this morning in a note:If you stop thinking of Microsoft as an innovator and start thinking of them as a fast, low cost, mass market follower, you’ll stop being disappointed in their inability to divine new markets and realise they are staring at some of their largest growth opportunities ever.
Her point is that Microsoft has a history of missing new technologies, but it hasn’t hurt the company. From operating systems, to browsers to the gaming market, Microsoft comes in with patience and a big checkbook and makes its mark.
We’d caution that this is a different world. Apple is a stronger competitor than ever, which Steve Ballmer acknowledged yesterday. And Microsoft doesn’t look like it will ever topple Google in search.
So, this time really could be different.
Still, Egbert thinks the stock is a buy, here’s the key points from her note:
- MSFT’s current valuation seems to reflect investor concerns that management won’t be able to find new areas of revenue growth. So they’ve rotated into AAPL, GOOG, VMW and other large cap tech stocks that offer a much higher current growth profile.
- But look at their history: Microsoft’s best growth came as they adopted technologies, mostly invented by others, to the mass market. This includes the operating systems, word processing, spreadsheet, email, database, development tools, browser, console-based games, online search, etc. We think investors need to stop expecting from Microsoft innovation ala Apple and start expecting low cost, mass market, inexpensive adaptations of popular technologies ala China.
- Yesterday’s analyst day showed that they are pursuing exactly this strategy yet again. They are in the early innings of mass adaptation of products developed by others – this time for tablet PCs, a mobile phone OS, cloud computing and online search. These are some of the largest growth opportunities Microsoft has ever seen. Before you laugh or dismiss this thought as absurd, look again at the annual revenue figures on the left.
See Also: 10 Reasons You Should Love Microsoft