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While the $2.5 billion acquisition of "Minecraft" game maker Mojang announced today (Monday) will benefit Microsoft Corp. (Nasdaq: MSFT), that's just one of many reasons that Microsoft stock is making a comeback.
Actually, the most important takeaway for investors from the Mojang deal is not so much what it will do for Microsoft stock as what it tells us about the "new" Microsoft and where it's going.
The new Microsoft was born in February when Satya Nadella took over the CEO post from Steve Ballmer, and the company's prospects have been on the rise ever since. Microsoft stock is up 28% in that time, and that trend should continue.
That's quite a reversal from the 14-year Ballmer era, when MSFT stock consistently lagged far behind the overall market.
In his brief tenure Nadella has shown an ability to make the tough decisions and take the risks required to get Microsoft stock moving again.
How the "Minecraft" Deal Helps Microsoft Stock
The "Minecraft" acquisition fits right in with Nadella's larger plans to rejuvenate Microsoft's mobile business, which had languished under Ballmer.
"We believe the acquisition of the ubiquitous 'Minecraft' game (almost 54 million copies sold) strategically makes sense as Microsoft looks for ways to drive users toward its nascent mobile hardware business, where it can leverage and cross-sell a wide range of its higher-margin software (e.g., Office 365, Windows)," FBR Capital Markets analyst Daniel Ives said in a client note.
But when looking at Microsoft stock, we need to view the Mojang deal in the context of all the other moves that Nadella has made.
"Nadella has put his seven months as Microsoft's CEO to good use," said Money Morning Defense & Tech Specialist Michael Robinson.
He noted that Nadella wasted no time in cutting some of the bloat at Microsoft, announcing plans to cut 18,000 jobs over the next year – 14% of the company's workforce – with most coming from the Nokia devices unit that Ballmer bought for $9.6 billion.
"The Nokia layoffs show that Nadella has no illusions about the challenges he faces in igniting mobile sales," Robinson said. At the same time, he thinks mobile presents a major opportunity for Microsoft.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.