The 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.

Summary:

I will upgrade my Office 2016 to the new 2019 version once Microsoft launches the home version. Office 2019 is currently only available for business users.

There are hundreds of millions like me who prefer the offline version of Microsoft’s productivity suite.

Microsoft will keep on updating its on premise Office suite because Office 365 is not going to reach 300 million active users anytime soon.

As of October 2018, there are only more than 135 million active commercial users of Office 365. This is in spite of its platform-agnostic design.

Businesses and ordinary Office users who do not rely too much on online collaboration will find it smarter to just a perpetual license for Office 2019.

Microsoft Stock Forecast by I Know First is strongly bullish in the long run.

Microsoft (MSFT) is now a cloud-first company. However, the stagnating growth of Office 365 easily explains why Microsoft still released its on premise Office 2019 product. Mr. Nadella knows all too well that there hundreds of millions of Windows/Mac users who still prefer regular Microsoft Office to Office 365. The persistent threat of internet-based hacking/security breaches makes on premise/local area network (LAN)/Private WAN network office productivity remains relevant forever.

This year is almost over but commercial Office 365’s monthly active users count is only more than 135 million. There are also still less than 40 million paying home users of Office 365. Microsoft knows it can reaped extra billions annually by continuously releasing newer iterations of its Windows/Mac Office suite. For the next three years, selling 50 million copies of Office 2019 (at an average price of $150) can contribute $7.5 billion to Microsoft’s coffers. This massive revenue from on premise software sales is why Microsoft will release Office 2021 and Office 2024 in the future.

The extra $7.5 billion will help Microsoft pay off the interest payments (pare down) on the $20 billion debt it acquired after it bought LinkedIn two years ago. My view is that selling on premise Windows/Mac products is more profitable than operating LinkedIn. LinkedIn’s advertising service will always remind far behind Facebook’s (FB) and Google’s (GOOGL) advertising platforms.

Office 2019 Could Boost Windows 10 Adoption

The other benefit of selling Office 2019 is it could encourage more Windows 7 holdouts to switch to Windows 10. Just like Microsoft Office 2016, Office 2019 can only run on Windows 10. Home users, students, small business owners and government organizations (who still rely on Office 2013 and Office 2010 running on their Windows 7 computers) could upgrade to Windows 10 machines. This will allow them to take advantage of the new productivity-accelerating features of Office 2019.

Windows 10 adoption is still slow. Released last July 2015, Windows 10’s usage share worldwide is still less than 52%. Windows 7 holdouts still account for more than 36% of Windows machines.

(Source: netmarketshare.com)

The importance of compelling more people to switch to Windows 10 is it can help improve Microsoft’s data gathering strategy over the 1.5 billion Windows OS users. Windows 10 has better user tracking/monitoring than older versions of Windows. Microsoft needs to grow its library of data covering the online habits of Windows users so it can improve its Bing search engine ads and display ads.

Compelling the other 800 million people to upgrade to Windows 10 can also help increase usage of Microsoft’s Edge browser. Edge currently has less than 5% share in global browser usage. Google’s Chrome remains dominant with more than 66% global share on laptop/desktop usage.

(Source: netmarketshare.com)

Bing’s low 8% share in global search engine usage coupled with Edge’s less than 5% usage share can improve when more people adopt Windows 10. Advertisers/marketers will continue to prioritize Google Ads over Bing Ads as long as Google’s search engine and browsers dominate global usage.

Final Thoughts

The reliable release of new, better versions of Microsoft Office is a good reason to hold on to your MSFT shares (or buy more). Desktop Windows and Office software products are no longer the main source of Microsoft’s profits. However, Office 2019 remains a long-term tailwind for Microsoft. Unlike in cloud computing, company on the planet today, which can offer real competition to Office 2019.

There are obvious future risks on betting on Azure and Office 365. Microsoft’s current lucrative cloud computing services and enterprise software-as-a-service businesses will eventually get more competition from Google (GOOG) Cloud and Alibaba (BABA) Cloud. Google’s strong advertising business can allow it to keep charging lower price tags for its cloud computing hosting services and online software products. Alibaba’s profitable e-commerce business can also help it under-price the monthly fees of Microsoft Azure.

Selling legacy software products to customers who do not rely on online collaboration is a reliable source of revenue for Microsoft. The undying dominance of Microsoft Office and Windows operating systems is why Microsoft still sell them for a price.

My buy rating for MSFT is in line with its bullish one-year market trend forecast. I Know First has a high 0.62 predictability score for MSFT. Its stock-picking algorithm has a good history of correctly predicting the 12-month price movement of Microsoft’s stock.

Past I Know First Forecast Success with MSFT

I Know First has been bullish on MSFT shares in past forecasts. On September 24, 2017, an I Know First algorithm issued a bullish 1 year forecast for MSFT with a signal of 48.68 and a predictability of 0.53, the algorithm successfully forecasted the movement of the MSFT share. After a year, MSFT shares rose by 53.55% in line with the I Know First algorithm’s forecast. See chart below.

This bullish forecast for MSFT was sent to I Know First subscribers on September 24, 2017. To subscribe today click here.



