Microsoft Struggling Compared to Apple; Still Worth the Investment?
Microsoft Corporation (NASDAQ/MSFT) CEO Satya Nadella must be envying Tim Cook of Apple, Inc. (NASDAQ/AAPL) these days after the staggering blowout quarter by Apple last week. Nadella, while a vast improvement over former head Steve Ballmer, is finding out how difficult it is to transform a business to the mobile side after years of the company doing very little.
Just when I thought maybe Nadella would succeed where Ballmer failed, it has now become clear that Microsoft has many hurdles left in front of it. And that’s derailing attraction to the company from Wall Street and investors. The move away from the company’s traditional personal computer (PC) products and towards the hot mobile space, via its cloud-based “Office 365” and hardware, such as its “Surface” tablets, has been much slower than many had been hoping for.
For shareholders, it has been a roller coaster ride, with the stock recently crashing to the low $40.00 level after trading at a 52-week high of $50.05 in November 2014. The stock has advanced inline with the S&P 500, which is disappointing for this former Wall Street darling.
Chart courtesy of www.StockCharts.com
The situation must be bad, as even the insiders are selling at a frantic pace, with 40.37 million shares dumped over 16 transactions during the past six months. Insiders bought only 2.97 million shares. When insiders sell, it immediately raises a red flag.
So while companies, such as Apple, Google Inc. (NASDAQ/GOOG), and Facebook, Inc. (NASDAQ/FB), are all moving forward with a focused mobile strategy that is paying off, I believe Microsoft will continue to search for that sweet spot. But it won’t be easy.
The Windows-based phones and the company’s purchase of the mobile assets of Nokia Corporation (NYSE/NOK) have not paid off. And I doubt it will, given that Apple is rapidly cornering the worldwide market for smartphones. Microsoft is a distant third, behind both iOS and Android-based phones. In fact, I doubt the Windows phone will ever become a major player and a viable product to allocate even more money to.
My thinking is that Microsoft should continue to push its increasingly popular “Xbox” entertainment business, which is catching up to Sony Corporation’s (NYSE/SNE) “PlayStation” platform.
In addition, Microsoft has another hidden gem in its “Skype” communication service, which is pretty good. However, so far, Skype has not attracted the capital or focus from Microsoft to further refine the app and make it a world-class service, competing with the likes of “WhatsApp” (Facebook) or even Apple’s “FaceTime” application.
At the end of the day, I have become less positive on Microsoft and feel it will be a tough uphill battle for the company to become relevant again. I would be putting my cash elsewhere. Instead, investors may want to consider dividend-paying companies that continue to prove themselves. Because in the tech sector, stocks have to stay near the top; if they get behind the times, it’s never a good sign.