NEW YORK (Reuters Breakingviews) - If the tech sector is in perpetual party mode, Microsoft is its designated driver. The software giant is vying with retailer Amazon to be the planet’s second-biggest firm by market capitalization, at nearly $730 billion. Its secret is dullness and durability: the predictability of Microsoft’s earnings under boss Satya Nadella has helped the firm’s stock outperform Apple, Alphabet and Facebook over the past five years.
Its quarterly results on Thursday show Microsoft is doing well. The company earned $7.4 billion, an increase of 35 percent over the same period last year. More importantly, customers continue to switch to cloud versions of Office and other business software, and buy increasing amounts of online services, storage and computing. Enterprise sales of Office 365 were up more than 40 percent, while revenue from the Azure cloud-computing platform rose over 90 percent.
Microsoft customers stick around for two reasons. One is that switching to rival products is hard. Enterprises are reluctant to go through the disruption of training workers on new software. The other reason is that Microsoft is fairly staid. A company that puts all its data on Amazon’s Web Services unit risks getting locked in or suffering a disruption if that company’s service goes temporarily out of service.
This reliability explains why the company’s earnings multiple has steadily expanded under Nadella. Microsoft’s shares now trade at 26 times estimated 2018 earnings, a premium to Apple, Alphabet and Facebook. Since he became chief executive in 2014, Microsoft investors have seen over a 28 percent annualized total return. They don’t need to worry about smartphone sales, data-privacy scandals or downturns to internet advertising. It may not be the most exciting company, but Microsoft at least knows how to stay on the road.
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