Short Sellers Flee Microsoft

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Based on the latest short selling data from Nasdaq, investors moved out of Microsoft Corp. (NASDAQ: MSFT) in droves. The short interest in shares fell 23% to 67 million. Perhaps these short sellers believe the turnaround engineered by new CEO Satya Nadella has started to take hold.

It is not just new initiatives that have driven Microsoft’s stock to multiyear highs. Shares are up 57% to $48 over the past five years. It is worth noting the Nasdaq is up 115% over the same period. However, Microsoft has more than closed the performance gap with Nasdaq over the past year. Shares are higher by 25% while the index is up by 17%.

It is not just the initiatives by Nadella that are responsible for the rise. His focus on cloud computing has caught the eyes of Wall Street. Although, some of Microsoft’s legacy businesses continue to perform particularly well. In the quarter that ended September 30, revenue rose 25% compared to the same period in 2013, from $18.5 billion to $23.2 billion. Per-share earnings fell from $0.62 to $0.54. Commercial licensing, operating income rose to $8.8 billion in the third quarter a year ago to $9.1 billion. Total commercial revenue rose 10% to $12.3 billion. This segment includes several older products:

  • Server products and services revenue increased 13%, with double-digit growth for SQL Server, System Center and Windows Server.
  • Office Commercial products and services revenue grew 5% as customers transition to Office 365.
  • Windows volume licensing revenue increased 10%.

Microsoft’s device business, which includes the Xbox, was considered a blunder for many years. The company’s other hardware business, the Surface tablet, was counted a complete failure. Each has performed very well recently:

  • Surface Pro 3 momentum drove Surface revenue of $908 million.
  • Total Xbox console sales were 2.4 million, growing 102%, and Xbox One launched in 28 new markets.

Whether it is new products and services, or ones that are upgrades of them from years ago, Microsoft’s success has caused anxiety in investors that have bet against it.

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