How Satya Nadella's Vision for Microsoft Is Slowly Coming Together
The stock, at around $45, is up 21% on the year to date, more-than doubling the tech sector's 9% gain. But investors are nervous about the company's Tuesday earnings, and not for the usual reasons.
The approval rating of new CEO Satya Nadella continues to rise and it's not hard to understand why. Since Microsoft reported its financial results in April -- Nadella's first as CEO -- the company has added roughly $31 billion to its market cap. As long as that trend continues, investors will prolong their applause.
What's more, unlike when Steve Ballmer was at the helm, Microsoft is finally getting the benefit of the doubt from Wall Street analysts it never enjoyed before. Nadella wants to turn Microsoft back into a growth company and there's now a sense that the right decisions will be made.
Although the company's dominant Windows and Office franchises continue to score the lion's share of Microsoft's revenue, Nadella is working to develop new, fast-growing businesses to lessen Microsoft's dependency on PCs.
These are still relatively small segments like commercial cloud service, Office 365 and the company's cloud platform Azure. Each of these businesses are growing revenue at a rate of over 100%. Equally and perhaps more impressive, gross margin in this segment is 25%, up roughly 7% year over year. That suggests Microsoft is making money in these areas.
Can this continue?
With rivals Apple