Microsoft Corporation (MSFT)’s Nook Adventures

Some pundits characterize Microsoft Corporation (NASDAQ:MSFT)’s smartphone efforts as another Zune. However, Microsoft has no choice but to stick with it or risk being irrelevant within a decade. The company does not need to be number one in market share. They simply need to be in the top five while looking for an opportunity if one of the bigger players stumble.

Microsoft in second place

Microsoft comes in second place in two major businesses. The company’s Bing search engine is a distant number two to Google Inc (NASDAQ:GOOG) Search and an equal distant number two to Amazon Web Services.

Bing is not going to go away because Microsoft Corporation (NASDAQ:MSFT) cannot afford to cede the business entirely to Google Inc (NASDAQ:GOOG). Plus, it is profitable and is becoming a favored platform for small advertisers. Microsoft also has a great opportunity available to gain market share if its management can manage their collective egos and enter into joint ventures with either Apple Inc. (NASDAQ:AAPL) or Facebook. Either deal could shave a few percentage points off of Google Inc (NASDAQ:GOOG)’s total with Facebook being the bigger opportunity.

Microsoft’s Azure cloud services business is well behind AWS from Amazon.com, Inc. (NASDAQ:AMZN), but doing very well considering Amazon’s head start. Microsoft is currently the biggest force keeping Amazon.com, Inc. (NASDAQ:AMZN) from gobbling up the marketplace with price discounts. Amazon.com, Inc. (NASDAQ:AMZN) recently lowered prices and Microsoft reached into its deep pockets and matched the reductions.

The bottom line is that despite all its failures and disappointing product launches, Microsoft still makes lots of money and should continue to do so for years to come. The dividend can safely be paid for years, so you need to ask yourself if Microsoft Corporation (NASDAQ:MSFT) can add share price growth on top of the 2.80% dividend. If the answer is yes, then add some to your portfolio.

However, first take into consideration that most of the price run up has come in just the last month as the negative expectations from recent product launches have worn off. At a P/E of 17, the stock is currently fairly priced and trading near the top of its 10-year range. It is a decent growth and income stock that should outperform Treasuries, but not currently a fundamental value play.

The article Microsoft Makes Money by Hook or by Nook originally appeared on Fool.com and is written by Eric Whiteside.

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