Microsoft Corporation (MSFT): Here’s Why You Might Want To Avoid It

Page 1 of 2

Investors have likely noticed the pronounced outperformance of Microsoft Corporation (NASDAQ:MSFT) shares over the past several weeks. Indeed, shares have rallied more than 20% just since mid-January. Long derided as being ‘dead money’ and a boring technology giant starved for innovation, Microsoft Corporation (NASDAQ:MSFT)’s share price performance in only a few months’ time is more indicative of a start-up in high growth.

Microsoft Corporation (NASDAQ:MSFT)

Beneath the excitement, however, is a disturbing lack of a suitable catalyst for such a rally. Should investors jump on the train? Or would investors be better served putting the uptrend under a microscope for further analysis?

Console mania in perspective

Presumably, a significant catalyst behind the rally in Microsoft Corporation (NASDAQ:MSFT) shares has to do with the likely revelation of a new Xbox video game console during a company event to be held May 21. It’s been eight years since the last new Xbox console release, so investors and video game fans alike are likely excited by the recent developments.

Fellow console maker Sony Corporation (ADR) (NYSE:SNE) is on a similar trend. After trading for less than $10 per share as recently as last December, the developer of the popular PlayStation console has rallied 70% in just a few months to its recent level of $17 per share.

Sony Corporation (ADR) (NYSE:SNE) released its PlayStation 3 device in the fall of 2006, and not wanting to be outdone by its closest competitor, will likely release a PlayStation 4 console around the same time of Microsoft Corporation (NASDAQ:MSFT)’s new release.

Curb your enthusiasm

Microsoft shares are in a clear uptrend, but for both video game enthusiasts and investors, the excitement surrounding new video game consoles needs to be put in the proper context.

Microsoft’s Entertainment and Devices Division is the business segment responsible for developing and producing the Xbox console. This division saw 35% revenue growth in 2006 and 28% revenue growth in 2007, thanks to the newly released Xbox 360.

However, it’s worth noting that Microsoft Corporation (NASDAQ:MSFT)’s Entertainment and Devices Division actually reported operating losses in both 2006 and 2007. That means that unfortunately, the Xbox itself was not a profitable venture for Microsoft when the last new console was released.

Furthermore, even in 2006 and 2007, the Entertainment and Devices Division accounted for less than 11% of Microsoft’s total revenue. And in fiscal 2012, the division made up just 13% of total revenue. To be blunt, the Xbox console is a drop in the bucket.

What really matters for Microsoft

A new video game console generates a lot of buzz from the media, for obvious reasons. However, for all intents and purposes, the Xbox just doesn’t matter for Microsoft.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!