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Is Microsoft’s share price a better bet than Zoom and Slack?

Microsoft's [MSFT] share price delivered a solid 34% gain in 2020, partly due to the cultural shift toward home working. That shift saw a huge uptake in Microsoft Teams, which lets colleagues set up virtual meetings, work collaboratively on documents and communicate via a chat function. At the start of the pandemic, the platform had just over 40 million daily users. By November, it recorded almost 120 million daily users.

Microsoft CEO Satya Nadella thinks Microsoft Teams could become as important as the internet browser. In an interview with the Financial Times, Nadella said he expects cloud software to become an “organising layer”, pulling workplace products together in a single place. If Teams can pull this off, could Microsoft weather the market better than much-touted rivals Zoom [ZM] and Slack [WORK]

 

 

 

Will Microsoft’s share price outperform rivals?

The pandemic has pushed Teams to the front and centre of Microsoft’s strategy for delivering business tools. What started as a free add-on to Office 365 has arguably pushed aside more fashionable rivals like Slack. 

Slack’s share price has gained 299% over the past 12 months as investors looked to cash in on products that enabled home working. Zoom's share price has seen a 381% increase in the same period as people scrambled for video-conferencing options.

Yet, neither of those companies has the same level of market penetration or financial heft as Microsoft. After all, part of Teams’ success comes down to the fact that it's bundled with Office 365, making it an easy choice for organisations already using Microsoft’s products.

“[Microsoft] wants the captive portal through which you experience everything else. They have tried this repeatedly. Teams is the closest they’ve come to it sticking,” Jim Gaynor, an analyst at Directions on Microsoft, told the FT.

 

"[Microsoft] wants the captive portal through which you experience everything else ... Teams is the closest they've come to it sticking" - Jim Gaynor, analyst at Directions on Microsoft

 

The space is also shrinking for smaller players. Last year, work-based messaging app Slack was acquired by Salesforce [CRM] in a $27.7bn deal. As Microsoft continues to improve and iterate on Teams’ video conferencing features, Zoom — which has seen its share price fall more than 10% since mid-December — could well find itself under threat. 

 

What do the analysts think?

Citi analyst Walter Pritchard upgraded Microsoft from neutral to buy in December. Pritchard said that the pandemic had created “a more permanent hybrid or location-flexible workforce” and the “increased reliance on digital productivity and collaboration is likely to see an enduring impact from change in the workplace landscape” as reported by Barron’s

Pritchard noted that while there is a “plethora” of productivity tools on the market place, most of the functionality is bundled into Office 365. The analyst also sees increased sales for both Azure — Microsoft’s cloud computing offering — and Office 365.

Prichard has a $272 price target on Microsoft, which would see a 26.6% upside on the current price (through 12 January’s close). While that price target is one of the more bullish on Wall Street, other analysts are also optimistic on Microsoft. Among those tracking the stock on Yahoo Finance, Microsoft’s share price has a $241.21 target — a 12.2% gain. Of the 34 analysts offering recommendations, 14 rate the stock a strong buy and 13 a buy. 

 

Market cap $1.63trn
PE ratio (TTM) 34.80
EPS (TTM) 6.20
Quarterly revenue growth (YoY) 12.40%

Microsoft's share price vitals, Yahoo Finance, 13 January 2020

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