Ask the Rational Investor: 365 Reasons to Own Microsoft

This past month, our office upgraded our Microsoft Office Suite from the one-time purchase included with a new PC to an annual subscription offering coined “Office 365.” For years, small businesses like Beese Fulmer had to choose between expensive, seamless Outlook integrations with cell phones and iPads or use cheaper, clunky third-party add-ins — that only sometimes worked!

The reason most small businesses chose third-party add-ins was cost. Seamless Microsoft Office integration required a Microsoft Exchange server, multiple licenses, and someone to administrate all of it! If that sounds intimidating and expensive, you can probably understand the hesitation by small businesses to opt for this option.

As internet connections have become faster and less expensive, one of the major benefits for consumers has been cloud-based computing. Even if you aren’t familiar with cloud-based computing, it’s likely you benefit from it daily without notice.

For example, every day our office uses a browser to access our portfolio accounting software; the software is no longer saved on our PC, but on the internet (or cloud). Another example might be logging into your bank account online.

I’m sure most of you are familiar with Microsoft Windows, the operating software on PC’s, and you’ve probably heard of Outlook, Word, Excel, and PowerPoint. These programs, among others, are part of the Microsoft Office Suite.

In June 2011, Microsoft launched Office 365, a cloud (or internet) based version of software that used to be installed locally on your PC.

Sales of Office 365 in 2012 were $606MM, a relatively small amount of the overall $22 billion sold of the Office software. In 2019 the sales of Office 365 are expected to be almost $22 billion while the sale of traditional Office (locally installed) is forecasted to be $9.7 billion and total Office sales are estimated at almost $32 billion.

This shift from a one-time purchase to cloud-based software is a big deal and has implications for investors because it shifts the purchase from being every few years to yearly.

Investors love recurring revenue due to the predictable nature and opportunity for annual price increases.

The Office Suite is only one part of Microsoft’s software portfolio, but many of its businesses benefit from Office’s shift from one-time purchases to subscriptions.

While there may be 365 reasons to own Microsoft stock, it surely isn’t without risk. Google and Amazon, among others are constantly trying to dethrone Microsoft. Investors should discuss the investment merits and risks with their portfolio manager to determine if it is an appropriate investment for their portfolios.

Sources: Goldman Sachs

Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.