MSFT Stock Prediction: Why Microsoft Is The Better Long-Term Investment For Enterprise Services and Digital Advertising

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

MSFT Stock Prediction

  • Microsoft is doing its best to protect the privacy of emails involving its overseas customerMSFTs.
  • Microsoft’s platform-agnostic strategy and flexibility to deal with Chinese censorship makes is a better long-term investment than Apple.
  • Apple appears to have lost its innovative ways while Microsoft is now just starting its trendsetting ascent as a hardware/software vendor.
  • I am bullish on MSFT, also based on I Know First’s forecast for the 1 year period

The unsubmissive stance of Microsoft (MSFT) to continuously contest the U.S government over privacy issues involving overseas emails is one of the reasons why I believe Microsoft will continue to grow its robust commercial licensing and enterprise services business. The sanctity of email privacy is a very important to all enterprise users and ordinary people.

More non-U.S. enterprise customers are likely to continue doing business with Microsoft because Nadella’s firm protects their secrets against government spying. Commercial Licensing is Microsoft’s biggest revenue generator. Overseas corporate clients might hesitate renewing their annual/monthly subscriptions if Microsoft capitulates now and allow U.S. government access to private emails and corporate communications.

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(Source: Microsoft)

Like Microsoft, Apple (AAPL) is also disputing the U.S. government’s access privileges over overseas or foreign emails. These two tech giants are obviously great long-term investments. However, I am now dumping AAPL shares to increase my position in MSFT. I believe that Apple is hitting a plateau while Microsoft is only starting its climb as a software/hardware provider.

After hitting record price levels earlier this year, AAPL’s one-year performance is no better than MSFT’s. It’s now reasonable for investors to gamble on the future of Microsoft as a hardware/software provider that could help it become the new Apple. Microsoft, unlike Apple, is just beginning its expansion as an all-in-one provider of high-end laptops, smartphones, tablets, software, and cloud computing services for corporate customers.

Sans titre1

(Source: Google Finance)

Microsoft Is Deftly Avoiding Censorship In China

Apple’s recent decision to also remove its News app in China to avoid offending the censors of that country shows the iPhone maker is still favoring its hardware business over its other business segments. This is contrary to the all-out effort of Nadella to put Microsoft in the map as a pragmatic hardware vendor and provider of platform-agnostic software/services.

My point is that, unlike Apple, Microsoft is not overly-dependent on Chinese iPhone revenue. It therefore has a better chance to benefit from the lucrative Chinese search and mobile advertising. As a retired player in the advertising/marketing industry, Apple’s abrupt decision to disable its News App in China is a strong hint that it is no longer interested in improving its weak iAD business.

Apple is obviously overly-protective of its iPhone/iPad sales in China. An offending article delivered via the News app could provoke sanctions from China’s overzealous censorship dictators. An iPhone is not really different from game consoles like the Xbox One. It is still covered by the following censorship rules.

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(Source: Techinasia.com)

Apple obviously knew that a third-party content-laden News app on iPhone/iPad is going to be a magnet for things that could offend the Chinese political overlords. Microsoft skillfully avoided this embarrassing issue by wisely recruiting Baidu (BIDU) as its partner to disseminate its new universal Windows 10 OS. Bing.com is not banned in China but Nadella was shrewd enough to use Baidu as the default search engine for new Windows 10 devices so it could avoid direct vulnerability from China’s censorship body.

The Microsoft/Baidu deal hints of revenue-sharing or collaboration to mutually profit from China’s fast-growing digital advertising industry. Next only to the U.S., China is the second-biggest growth driver for digital/mobile ads. Apple’s iAD is already a loser in U.S. advertising because it refuses to give advertisers full access to personal data of iOS device users.

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(Source: Statista)

Without a China-native News app, Apple again reduced its already meager avenues to push targeted ads to millions of iPhone/iPad users in that country.

Even though Apple will sell more iPhones in China that Microsoft will ever do, I believe that Microsoft is the better bet when it comes to China’s advertising industry. Microsoft’s enhanced personal data gathering is also saying it is willing to go as far as Google (GOOGL) when it comes to attracting big-spending advertisers. Google’s search and mobile advertising is absent in China and Apple failed to capitalize on this.

The abrupt decision to remove the News app in China to pre-emptively avoid censorship issues paints Apple as a nervous/harried company, which is far from its old fearless innovator image. Can’t Apple software engineers code a few filters that will still block sensitive information from polluting the minds of Chinese iPhone/iPad users? I guess not because Tim Cook killed the China version of the iOS 9 News App.

Microsoft’s shrewd partnership with Baidu makes it the only other major U.S. firm that could follow Linkedin (LNKD) toward making some money on China’s ad industry.

Microsoft Is Exploiting Apple’s Love For Product Differentiation

Apple’s stock is also losing its appeal because Tim Cook is stuck in a quicksand mentality of product differentiation. He believes that iOS and Mac OS X products should never mix. Microsoft’s Surface Book, first pre-order batch of which sold out in five days, is a great example how Microsoft is hurting Mac sales and iPad sales.

A weakened iPad/Mac sales coupled with Apple’s negligible role in digital advertising gives Tim Cook little expansion option outside its iPhone comfort zone. Apple already has difficulty in landing content licensing deals for it’s already-delayed streaming video services. The Apple Watch is also obviously not going to sell 20 million units anytime soon.

Worse, Nadella is deftly exploiting Apple’s insistence that form follows function. Apple is wrong to think that a MacBook should never have touchscreen display due to the fears that it could discourage people from buying the iPad Air 2 or IPad Pro. The Surface Pro 3 successfully exploited this Achilles Heel of Apple’s addiction to product differentiation since last year.

I opine that Microsoft is going to increase its sales of Surface Pro 4 and Surface Book to the great detriment of Mac/iPad sales. Marrying the compute power of a MacBook Pro-level laptop with the versatility of a tablet, gives Microsoft a huge total addressable market.

Other PC vendors like Dell and Hewlett-Packard (HPQ) are now also coming up with even cheaper versions of the Surface Pro, which could only worsen the hurt against sales of MacBook and iMac computers.

My Takeaway

MSFT is a Buy. Nadella is leading Microsoft’s renaissance as an agnostic-platform software/service provider. Microsoft is smartly expanding toward high-margin innovative hardware products while Apple is still stuck in its outdated belief that Mac computers should not have a touchscreen displays. Its productivity software and services are far more deeply embedded in the enterprise market than any other competing firms.

Microsoft also has a hefty cash hoard stowed overseas that it could use to buy new growth-driving companies.

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(Source: Statista)

My bullish outlook for Microsoft is also because I Know First’s 12-month forecast for MSFT is +14.68, meaning brave investors who go long on this stock now could possibly win some notable capital gains after one year.6

Source: Algorithmic Stock Forecast For 1-Month, 3-Month, 1-Year Period From October 16th 2015 

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