Microsoft Shares Soar to Record on Earnings Boost From Cloud

Why does this matter to them?

Stocks are very strange to me.. when I think of owning a business, I'd hope to get some share of the profits, which as I understand it, is dividends for stocks. This being the case, I always thought stock buybacks were a long term investment in the sense that the company would pay more upfront so they'd have to pay less dividends.

This makes sense except that companies seem to barely pay dividends now, I'm guessing because it's unfavorable due to tax reasons. This makes it seem like there's a strange disconnect between owning a business and deriving income from it, because now most people only buy hoping to sell at a higher price to others. But why do other people buy it at a higher price if the company doesn't pay more dividends? I find it all very strange..

Why does a company care about its stock price? Is it just to please shareholders? Prevent buyouts? Make it easier to compensate employees?

Market cap is the multiple of shares outstanding vs share value. The number of shares would go down, but the market cap would also go down. You just spent a lot of money.

Also, the value of the company would go down because its cash equivalents would go down by the amount it spent on the buyback.

The buyback is the equivalent of a dividend. Every time a company gives a dividend, the stock price goes down by the amount of dividend it gives out.

> but even then I don't think it would be so simple, as that 100B in shares would now be listed as assets to the company and could be used as remuneration for the employees, among other things.

Incorrect. From: http://www.investopedia.com/articles/02/041702.asp

The idea is simple: because a company can't act as its own shareholder, repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced

> In the process of buying shares back, the market capitalization would increase due to the increase in share price.

Wrong. If that was true, you'd have a company spending money and having a market cap that increases. See the problem? Generating money out of nothing...

> The share price would absolutely move.

Wrong. If this was true, you would just buy stocks of companies that do buybacks and make some alpha doing that. In fact there is an etf that tracks just such companies and it underperforms the S&P 500: https://www.google.com/finance?q=NYSEARCA%3ASPYB&ei=TXkKWJjO...

> This is why companies have stock buy-backs, in order to pump up the share price.

Wrong. They buy back shares to return money to investors. If you have a pile of cash sitting in your books, you can either return it to investors by paying back dividends or buying back shares. Only way it would increase the stock price is by signaling that the company doesn't need money and can return it.

When a share is bought back by a company, accountants handle it by either cancelling the stock or turning it into treasury stock, which has negative equity value to cancel out its positive nominal value. In either case, the repurchased stock does not add value to the company.

To illustrate the point, consider creating a company that consists of three $1 bills. You create three shares of the company and sell them to three investors. Assume that the market is efficient and that each share is valued at $1. Let's imagine the company's balance sheet. It has $3 of assets (cash) balanced by $3 of equity (stock). Now the company decides to spend $2 on share buybacks. It spends $2 of its cash pile buying two shares from two investors. Let's look at the balance sheet now. It has $1 of assets left (cash) balanced by $1 of equity (the remaining outstanding share). If you like, you can optionally record the two shares the company bought as treasury stock, so that the equity is $3 of stock and -$2 of treasury stock, for the same total of $1 outstanding stock.

As you can see, the value of the company falls when it executes a share buyback. This makes sense, because after the buyback, the company is poorer.

Market cap - what a company "owes" it's investors. Definitely on the liabilities side. The value of the company.

Cash - what a company definitely owns (and could, for instance, pay to it's investors)

So there is this measure of company's worth called "enterprise value" which is Market cap + debt - cash - assets. It sort-of is what you'd get if you acquired the company and immediately sold everything off. To put it another way : it's everything Microsoft has, other than the business it's involved in.

It can indicate that there are deals to be had. For instance if you pay $50 million for a company that has running accounts with $40 million on them, have you really paid $50 million for it ? You had control (through a company) over $50 million, and now you have control over $40 million and a company, so there is an argument to be made that you "only paid" $10 million.

So "enterprise value" is what you would really have to pay for a company, and for a lot of people considered a more useful metric than market cap.

The 10% that annoys me is mostly around the way update works. If you have long running processes (like security camera DVR software, big render jobs, etc...) having the OS decide to reboot in the middle of the night is a bit of a headache. I know you can disable the update service, but it would be nice if they just put that in the windows update UI.

The other part that bugs me are the re-appearing bloatware apps like 3d builder, weather, contacts, xbox, groove music, etc.... The flipside of the reappearing apps issue is Microsoft uninstalling my VPN client. They don't think it's compatible with W10, but it works perfectly for me so I have to reinstall it every time.

To get back on topic though, Microsoft's Azure is fantastic. The earnings boost is well deserved.

https://www.reddit.com/r/Surface/comments/3s14un/just_a_remi...

why?

In finance speak, MSFT's cost of capital is dependent on the risk-free rate, usually the 10-year US treasury, which is incredibly low right now, thus moving MSFT's cost of capital (the 0.1 in your denominator) lower. A quick search tells me that their cost of capital is currently around 7%.

Also, you can't add assets in, since operating assets are required to generate that FCF. You can add in cash, though, which is pretty substantial for MSFT.

Sure it is, I have no doubts about it's growing use. But that use is still in nascent stage so when Microsoft is reporting a sudden increase in cloud revenue is actually nothing but smart manipulation of ELA terms.

In reality Enterprise Customer aren't cloud ready . Simply running on premises virtual machines into cloud does not result in any benefits. Enterprise customers are not yet there to realize the cloud benefits like on-demand compute, containerization, resource right sizing. Though Windows 2016 might tip that balance.

They effectively raised the cost significantly for perpetual licensing/SA to push you into services agreements. Simultaneously, you get favorable terms (ie. anything other than MSRP) only if you commit long-term. Upon renewal they try to make you give up your right to transition back to perpetual licensing for Office.

So my bet is this is bullshit, shifting office dollars to O365, which include plans where you're just renting Excel.

I don't want to have to look up the commands every time I want to run a thing I do once a month, quarter or year. I just want to click a button that doesn't take 20 fucking seconds to load and isn't buried amongst a ton of useless menu items.

The joke in our office is that the Azure team gave the portal interface to the interns to do. It's a UI that's poorly thought out, poorly programmed and massively unresponsive.

It's so obviously been conceived of by a programmer who is inappropriately obsessed with their "innovative" modular design.

But a CLI? Certain types of people with amazing memories like CLIs, but please don't inflict them on the rest of us. They're shit. AWS's portal is good enough, but Azure's is rubbish.