If you look at Microsoft’s financial history, the stock may be headed for a split sooner than analysts expect. MSFT revenues are likely to rise higher, delivering more profits, and margin to the company based on the growth of the cloud computing market as a whole.
The market is expected to double in size from 2020 to 2025. According to MarketsAndMarkets, spending forecasts show a CAGR of 17.5%, which goes from almost $371.5 billion to approximately $832 billion in 2025.
With this supporting evidence and a Microsoft share price approaching $300, the odds of the stock splitting seem likely. If that should occur, research indicates that the share price will outperform the markets 3 years after the split.
Also, given that the public embraces Microsoft products and services for computing, gaming, and cloud applications, the company’s revenues is projected to grow at a strong pace. Rapid and sustained growth seem to be a part of Microsoft’s vernacular.
Where MSFT Has Been Informs Where It’s Going
Established on April 4, 1975 in Albuquerque, New Mexico by Bill Gates and Paul Allen, the company is headquartered in Redmond, Washington.
As of 2020, the company employed 163,000 employees. It has an annual revenue of $143 billion. Some of Microsoft’s subsidiaries include GitHub, Skype Communications, and Yammer. The CEO of Microsoft is Satya Nadella, who took on the role on February 4, 2014.
Here’s a look under the hood at what Microsoft actually does.
The company’s productivity and business processes division features products, such as Office, SharePoint, Microsoft Teams, Exchange, Office 365, and Skype. It also supports the works of Outlook.com, LinkedIn, OneDrive, and Dynamics 365, designed especially for small and medium business use.
The firm’s intelligent cloud segment licenses Windows Servers and SQL, Visual Studio, and related client access licenses (CALs). Microsoft’s subsidiary, GitHub offers a platform for collaboration and code hosting for developers.
In addition, the company provides services via its Azure platform. Customers depend on Microsoft consulting services to help them with the development, deployment, and management of their Microsoft server desktop software.
Gaming support comes in the form of Xbox hardware and services and the Search feature developed through Bing adds to the company’s profitability. Microsoft sells its products through distributors, OEMs, resellers, or directly through online stores, retailers, or digital marketplaces.
Could A MSFT Stock Split Happen Soon?
In spite of a significant rise in share prices since March 2020, MSFT still has significant upside potential according to a discounted cash flow analysis.
While the dividend yield may not be especially appetizing, MSFT’s dividend has still quadrupled over the last 10 years.
With its share prices near 52 week highs, the odds of a MSFT stock split are heightened.
The following recent Microsoft histories of pre-split and post-split share prices and their gains and losses show that Microsoft has regularly split its shares over time.
On 9/18/87, a 2 for 1 stock split occurred. The pre-split share price was $114.50. After the stock split, the share price was $53.50, a loss of -6.6%.
More recently, on 03/26/99, a 2 for 1 stock split happened. The share price at the time was $178.18 with the post-split price registering at $92.38, a 3.72% gain.
The most recent split happened on Valentine’s Day 2003. At that time of the 2 for 1 split, the pre-split price was $48.30 with the post-split price recorded at $24.95, a gain of 3.35%.
Over the past ten years investing in MSFT stock would have led to an 11x return plus. Specifically a $10,000 investment in Microsoft would now be worth $112,436. That is the return without accounting for reinvested dividends.
An investor who chose to reinvest dividends during the same period would have turned $10,000 into $132,937.
What a Stock Split Can Mean for Microsoft Investors
Microsoft has experienced 9 stock splits in its history since 1987.
A Columbia University study, conducted in 2012, showed that during the 3 days surrounding a stock split, shares outperform by +1.6%. While the median gain may be blurry for dividend-paying stocks, stock splits do accurately project an increase in future dividends.
However, research also shows that a stock split can reduce earnings growth. Nevertheless, two years after a split, the future earnings growth of a company with split shares is still greater than equal companies with similar histories regarding growth.
Will Microsoft Split?
Given Microsoft’s history for 2 for 1 and 3 for 2 splits as well as its lofty current share price, the odds favor another split sooner than later.
But an interesting trend has occurred in recent years. Specifically companies like Amazon and Alphabet have chosen not to engage in stock splits, but rather to follow the Berkshire Hathaway model of letting share price appreciate ad infinitum.
If Microsoft management team adopts this approach to letting shares appreciate without splitting them, investors should not hold their breath waiting for another division of shares anytime soon.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.