Microsoft Corporation (MSFT) Is Stronger Than People Think

Another market in which Microsoft is competing with Google is search and online advertising. Microsoft’s Bing search engine increased its U.S. market share to 17.9%, up 230 basis points year-over-year. Online advertising revenue increased by 11% as Microsoft is slowly chipping away at Google’s dominance.

Google, like Microsoft, reported disappointing earnings. Google missed badly on both revenues and profits, and the shift to mobile search has caused a lower cost-per-click and hurt the core advertising business. Google’s shares were hit, but not nearly as hard as Microsoft’s

Continued strength in server & tools

The most promising division for Microsoft Corporation (NASDAQ:MSFT) is its server & tools division, which saw double-digit bookings growth in the quarter. Product revenue was up 9% along with enterprise services revenue, and Hyper-V, Microsoft’s entry into the virtualization market, is gaining market share. One of the gems of this division is Windows Azure, a cloud platform which competes with Amazon.com, Inc. (NASDAQ:AMZN)’s web services. Azure became a $1 billion business in April, and the growth prospects are truly staggering. Forrester Research analyst James Staten has this to say:

I expect them to double annually from here. Microsoft probably has more net new growth opportunity sitting in front of them than probably anyone in the market.

Within a few years Azure could be bringing in more revenue annually than Windows. Microsoft is quickly diversifying itself, and it should pay off in the long-run.

The bottom line

The key to Microsoft is the enterprise, and that business is strong. Windows 8 has been slow to gain acceptance from consumers, and Surface RT was a disaster, but Microsoft Corporation (NASDAQ:MSFT)’s other businesses are growing at an impressive pace. Office remains strong, and Office 365 should allow Microsoft to fend off Google’s advances, while Azure has the potential to grow far larger than it is today. The huge drop in the share price was an overreaction, and in the long-term Microsoft is in a better position than many people think.

The article Microsoft Is Stronger Than People Think originally appeared on Fool.com and is written by Timothy Green.

Timothy Green owns shares of Google. The Motley Fool recommends Google. The Motley Fool owns shares of Google and Microsoft. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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