Microsoft Corporation (MSFT): Against Tough Odds, There’s Still Value in This Tech Giant

Will the cloud and enterprise ever strike back?
One of the most popular cited bear arguments against Microsoft has been its declining enterprise leverage. But the company did well in the quarter, growing server and tools revenue by 9% to $5.19 billion. The question, though, is how well should investors expect this business to perform going forward? And will it be enough to fend off rivals such as Oracle Corporation (NASDAQ:ORCL) and the dominant salesforce.com, inc. (NYSE:CRM)?

Microsoft is making strides, as evidenced by the 40% year-over-year aggregate improvement in online services. But it’s not yet profitable, including a $647 million loss this quarter. The good news is that revenue just recently grew 11%. On the other hand, Microsoft lost 10% in the business division, which includes Office. By and large, this is the reason for the Street’s frustration.

As noted, the reliance on the PC business remains and Windows and Office won’t stay dominant for long. Microsoft will need to develop more profitable franchises. This urgency is great, especially since Microsoft has yet to show any clear strategies toward the cloud.

While the Azure platform looks OK, it is not yet ready to rake in the cash to needed to supplement weakness in Office and Windows, even though margins in that market are understood to be better. Meanwhile, this has not escaped Oracle and Salesforce, which are seen as more nimble and better prepared.

Foolish bottom line
All of that said, it’s hard not to like Microsoft at current levels, particularly with these recent improvements. Despite the bearish tone on the Street, there’s still plenty of value in the stock. But for that value to be realized, investors will have to wait longer than they would like.

With time, fair value can reach $35, or 20% higher. Then again, patience should not be that difficult since Microsoft offers one of the best yields on the market at 3.3%. As has been the case for a while now, value is not the problem. But Microsoft has more work to do to change sentiment.

The article Against Tough Odds, There’s Still Value in This Tech Giant originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Salesforce.com. The Motley Fool owns shares of Amazon.com, Apple, Microsoft, and Oracle.

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