Microsoft (MSFT) stock is surging. Its share price rose from $245.58 on 22 November 2022 to $376.44 on 24 November 2023.
Hence, Microsoft added $132.27 in share value in a year. Interestingly, most of this growth occurred before Microsoft hired former OpenAI CEO Sam Altman. Sensibly, Microsoft staff had an office ready for Altman at its San Francisco location before his firing, Business Insider claims.
Open AI fired Altman on Friday 17 November 2023. Microsoft CEO Satya Nadella hired Altman to run an advanced AI research team on Sunday 19 November 2023. However, OpenAI rehired Altman on 22 November 2023 after an employee revolt.
Is OpenAI Driving Microsoft’s stock up?
Skeptics will wonder if all the artificial intelligence hype and the Altman drama is driving Microsoft’s price up.
OpenAI is the creator of the popular ChatGPT AI tool. ChatGPT had around 180 million users in November 2023, Exploding Topics estimates. ChatGPT’s website attracted 1.5 billion visits in September 2023.
It took just five days for OpenAI to acquire one million users in November 2022, Exploding Topics estimates. In contrast, took Twitter two years to attract one million users in 2008 and one hour for Meta’s Instagram Threads social media to gain none million users in 2023.
Hence, many people will wonder if OpenAi is driving Microsoft’s success. Cynics will note that OpenAI gives ChatGPT away for free. The Generative Pre-training Transformer is a bot that “generates human-like text based on a given prompt or conversation.”
ChatGPT created a firestorm of controversy because it can mimic human writing. Indeed, I think many ChatGPT articles are better written than a lot of the journalism I see online.
Microsoft’s Extraordinary Growth
I think Microsoft (MSFT) could be worth $376.44 because of its extraordinary growth.
For example, Microsoft’s quarterly revenues grew from $50.122 billion on 30 September 2022 to $56.189 billion 30 September 2023. Its revenues grew by 12.76% in the quarter ending on 30 September 2023.
Similarly, the quarterly gross profit grew from $34.67 billion on 30 September 2022 to $40.215 billion on 30 September 2023. Meanwhile, the quarterly operating income grew from $21.518 billion on 30 September 2022 to $26.895 billion on 30 September 2023.
This growth includes Microsoft’s cash flow. Impressively, Microsoft’s quarterly operating cash flow grew from $23.198 billion on 30 September 2022 to $30.583 billion on 30 September 2023. Extraordinarily, Microsoft’s quarterly ending cash flow grew from $22.884 billion on 30 September 2022 to $80.452 billion on 30 September 2023.
Consequently, Microsoft’s cash and short-term investments grew from $107.262 billion on 30 September 2022 to $143.951 billion on 30 September 2023. Thus, Microsoft is one of the world’s most cash-rich companies.
Microsoft is an Incredible Value Investment
I consider Microsoft (MSFT) an incredible value investment because of the growth. For instance, the total assets grew from $359.784 billion on 30 September 2022 to $445.785 billion on 30 September 2023.
However, Microsoft has more debt. Its total debt grew from $48.622 billion on 30 September 2022 to $71.502 billion on 30 September 2023. Notably, Microsoft reported a $14.761 billion cash flow on 30 September 2023.
Conversely, Microsoft used much of that debt to pay $69 billion for Activision Blizzard. I consider the Activision purchase, a wise acquisition because it owns some of the world’s most popular games including Call of Duty, Overwatch, and World of WarCraft.
What Value does Activision bring to Microsoft?
Call of Duty: Modern Warfare II, and Warzone 2.0 were averaging 65,050 concurrent players on Steam in June 2023, Statista estimates. However, that number was down from an average of 223,900 in November 2022.
Meanwhile, Overwatch 2 was averaging 1.723 million players a day on 2 November 2023, Dextero estimates. Overwatch 2 was averaging 357,808 players an hour on 22 November 2023, ActivePlayer estimates. In comparison, Overwatch 2 attracted 25.842 million players in the 30 days ending on 22 November 2023. Plus, 14.113 million people watched Overwatch 2 on Twitch in the 30 days ending on 22 November 2023.
All versions of World of WarCraft attracted 5.6 million players in the first 11 months of 2023, Game Champions estimates. The classic version of World of WarCraft attracted 870,000 players in 2023.
Thus, Activision Blizzard brings tens of millions of game players to Microsoft. They could use Activision Blizzard games to grow Xbox by adding exclusive versions of Overwatch or Call of Duty for Xbox.
Microsoft (MSFT) is a major player in games
Microsoft (MSFT) is already a giant player in games because of Xbox. The Xbox Game Pass had over 30 million subscribers in August 2023, Purebox estimates.
Microsoft claims Xbox Game Pass had 29 million subscribers in November 2022. Those numbers could grow as Microsoft rolls Xbox Game Pass Core and Xbox Live Gold subscribers into Xbox Game Pass.
Microsoft was the third largest publicly traded game publisher with $6.08 billion in revenues in the first half of 2023, Newzoo estimates. In comparison, Activision Blizzard had $4.48 billion in the first half of 2023.
I calculate Microsoft could become the second largest publicly traded game publisher with $10.56 billion in first-half 2023 revenues by purchasing Activision Blizzard. In contrast, the largest publicly traded games publisher is Tencent Holdings which had $15.58 billion in first-half 2023 revenues.
How Xbox adds cash and value to Microsoft
Thus, Microsoft has become a dominant force in games. I think that will add revenues and cash to Microsoft. A company that is growing dramatically.
Xbox generates cash because Microsoft charges $9.99 a month for a Game Pass PC subscription and $16.99 for a monthly Ultimate Game Pass subscription. I think Xbox Game Pass subscriptions could generate enormous amounts of “float.”
I estimate Microsoft could make $299.70 million a month or $3.596 billion from Game Pass if every user bought a PC subscription. The actual number is probably higher because some players buy more expensive Ultimate Game Pass Subscriptions.
If just 10% of Game Pass users buy an ultimate subscription. I calculate Microsoft cold make $50.97 million a month, or $611.640 million a year.
Float is the term Warren Buffett uses for streams of cash such as insurance policy premiums. Buffett estimates that insurance premium float added $164 billion to Berkshire Hathaway (BRK.A) in 2023. Float is the secret ingredient Buffett used to build his Berkshire Hathaway empire.
Similarly, Microsoft (MSFT) is using Xbox float to build its growing empire. For example, Microsoft can afford to invest in OpenAI and buy Activision Blizzard because of float.
Is Microsoft (MSFT) a value investment?
I consider Microsoft (MSFT) a value investment despite its $378.85 price. I consider Microsoft a value investment because of its growth and cash.
Furthermore, Microsoft will pay nine 75¢ quarterly dividends between 15 February 2023 and 14 November 2023. Overall, Microsoft shares offered a $3 forward dividend and 0.79% dividend yield on 22 November 2023. Dividend fans will wonder if Nadella will increase the payout with all the new cash.
I think Mr. Market has realized Microsoft is one of the best stocks around. In the final analysis I think Mr. Market is right about Microsoft, it could be America’s best stock in 2023.
*https://www.businessinsider.com/microsoft-has-hired-former-openai-ceo-sam-altman-2023-11
*https://www.theverge.com/2023/1/23/23567448/microsoft-openai-partnership-extension-ai
*https://www.barrons.com/articles/microsoft-stock-openai-chatgpt-stake-value-ai-5de2525c
*https://explodingtopics.com/blog/chatgpt-users
*https://www.investopedia.com/what-is-chatgpt-7094342
*https://www.statista.com/statistics/1358496/cod-mw-ii-and-warzone-20-number-players/
*https://activeplayer.io/overwatch-2/
*https://www.gamechampions.com/en/blog/world-of-warcraft-player-count-in-2023/
*https://www.levelup.com/en/news/755681/How-many-subscribers-does-Xbox-Game-Pass-have-Executive-accidentally-reveals-it#:~:text=In%20case%20you%20don’t,an%20estimated%2030%20million%20subscribers.
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