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Report MSFT
Report MSFT
MISSION
Microsoft’s corporate mission is “to empower every person and every organization on the planet to
achieve more.” This mission statement shows that the business is all about empowerment of people
and organizations. Such empowerment is achieved through the utility of the company’s computing
products.
● Empowering communities: Microsoft focuses on the intended purpose of its products on the
users – empowerment. The company deals with a wide range of products with varying
benefits.
● Exceeding expectations: Microsoft lays a lot of emphasis on going beyond what their
customers expect them to do.
● Every person and organization: While doing what it does best, Microsoft remains aware of its
market. By making clear that it does not exclude anyone, the company re-emphasizes its
determination to do more as reflected in the second component of its mission statement.
VISION
Microsoft’s corporate vision is “to help people and businesses throughout the world realize their full
potential.” This vision statement shows that the company presents its business and computing
products as tools that people and business organizations can use for their development.
● Throughout the world: The first element of this vision statement reveals that Microsoft is not
a local or regional company. The firm targets the entire global market, and there is no
limitation to who can benefit from the products of the company. Microsoft has something for
everyone ranging from individuals to businesses of all types and sizes.
● Realize full potential: In this second element, the company brings out the intricate details of
what all its tools, devices and software are meant to do. Helping its clients to enhance their
skills and potential is what defines Microsoft, and that is why the company prioritizes
innovations that are customer-centric.
CORE VALUE
Microsoft’s core values are “innovation, trustworthy computing, diversity and inclusion, corporate
social responsibility, philanthropies, and environment.” The presence of these values has enabled
the management to direct all workers towards the mission and vision of the firm. These values aid the
company in various ways.
Microsoft understands the importance of creating an innovative culture to thrive in the
computer technology sector. This directly contributes to the presence of products that help customers
with dependable computing. To have a healthy impact across the globe, Microsoft has learned the art
of diversifying and being inclusive to ensure the company has a global image that does not alienate
anyone.
It also enhances this reputation by staying true to its responsibility to the society through
programs that empower and give back to the communities as shown in its fourth and fifth corporate
values. As a sustainable company, Microsoft’s success is directly related to the environmental
friendliness associated with its products as well.
PESTLE ANALYSIS
1. Political Factors
Microsoft had to do strong lobbying with the governments of different countries so that there is a
positive image of the company in government circles. The company has paid more than $10 million in
two years towards lobbying to build a favourable image of the company in political circles. Microsoft
grabbed the attention of governments due to the anti-trust related issues. The government put the
blame on Microsoft for creating a monopoly as Microsoft is offering bundling software and it was
alleged that Microsoft made it difficult for the consumers to uninstall its browser and use a competing
browser.
2. Economic Factors
The GDP of the country, its people's disposable income, and inflation are the important factors which
can provide both the opportunity and threat to the company.
Microsoft is a worldwide known company and its Windows 10 is the world's most used operating
system. In the 2008 recession, when the financial crisis was at its peak, Microsoft business was
affected so much that it had to lay off 5000 employees. The increasing income of people in developing
countries provides a great opportunity for Microsoft as many people are buying laptops and
computers as on most of the computers Microsoft operates.
3. Social Factors
The adoption of computers and laptops has seen a dramatic increase in recent years in every part of
the world. The company needs to adapt itself according to changes in the customer preferences,
trends and cultures. When there was a boom in laptop and computer sales, it benefited a lot to
Microsoft as its operating system became everyone’s favourite in no time. But now people are using
mobile phones more than anything. For people, mobile phones have become a necessary part of their
life. But Microsoft doesn’t grasp this change and focuses mainly on laptops and computers. Microsoft's
major products are compatible with computers only and not for the mobiles and it is necessary for
Microsoft to focus now on smartphone users to increase its sales.
4. Technological Factors
Microsoft is the world leader in technological innovation. It is the first company in the world which
introduces operating systems which revolutionize the world. It introduced the feature of the Start
button which became so popular that it had to relaunch it after Microsoft scrapped it in 2012. It
launched the once most popular web browser ‘Internet Explorer’. Internet Explorer opens up the
window to the world. With its exceptional features, people can find any information within seconds
and can communicate with people sitting in other parts of the world. It revolutionized the information
age. Microsoft is continuously improving its operating system to give a seamless experience to its
customers. Its latest Windows 10 is the world’s most used operating system.
5. Legal Factors
Microsoft is the world’s largest company in the world. So, its chances of getting in legal issues is very
high. The total lawsuit playouts it has given till now amounts to a whopping 9 billion. The company
entangled into legal imbroglio when its 8,600 current and former employees filed lawsuit against the
company for gender discrimination. The lawsuit said that Microsoft systematically discriminated
against female engineers and IT employees. It was alleged that one out of 120 gender discrimination
complaints made by female Microsoft employees was looked upon by the Microsoft internal
complaint investigation team. In 2018, a person sues Microsoft after a forced Windows upgrade
destroys his PC. The person purchased the Asus laptop in which Microsoft Windows 7 was preinstalled
but the computer became non-functional when the upgrade to Windows 10 failed. The company
needs to be very careful in today's time to satisfy the customer's needs while at the same time keeping
in mind that nobody is discriminated against on any basis.
6. Environmental Factors
Since every major company is going green in today’s world, it is obvious for Microsoft (the world’s
largest company by market capitalization) to take the green initiative as a priority project. In 2019,
Microsoft has been ranked as the world’s most environmentally friendly company according to the
reports published by Just Capital. Microsoft is giving grants to use AI to address global warming.
Microsoft has given grants of 500,000 to universities to stimulate research on environmentally
sensitive computing.
Microsoft is a 100% carbon neutral company. It also charges an internal carbon tax on its own
business for the dual purpose of its units to be more environmentally conscious and to pay for the
climate change from the tax collected. Microsoft has committed to spend 50 million$ in the five years
to support projects that will use Microsoft AI and machine learning technology to tackle
environmental challenges.
Out of the top five tech brands, Microsoft made the biggest moves with 30% brand value
growth. Other big movers in the top 20 were Instagram (owned by Facebook), Adobe, and LinkedIn
(owned by Microsoft), rising 47%, 29%, and 31%, respectively.
While the brand value growth rates of tech giants aren’t entirely immune to the effects of
COVID-19, the likes of Apple, Microsoft, and Google are growing steadily, surpassed only by e-
commerce leader Amazon.
B. Rival’s overview
Microsoft Corporation’s (MSFT) primary competitors include some of the most prominent technology
companies in the industry. The list includes well-known brands such as Apple (AAPL), Google (GOOG),
SAP SE (SAP), IBM (IBM) and Oracle (ORCL), among others. Because Microsoft is a diversified
corporation that offers many types of products and services, the company faces stiff competition in
several key areas of the technology sector.
Microsoft got its start by focusing on software, and although the company has branched out
into other areas, it still has a strong emphasis in this field. Some of the most successful software
corporations in the world, such as Oracle and the German firm SAP SE, compete directly with Microsoft
for the lucrative business services market.
Microsoft is also an important player in the hardware field. Its products include tablets
designed to compete with similar devices made by other companies, such as Apple. The company
makes a variety of computer accessories as well, which brings it in direct competition with several
firms that specialize in this area, such as Logitech.
Therefore we choose Apple and Oracle as Microsoft’s main rivals due to thier diversified
sectors.
1. Competitors’ profiles
1.1. Apple (NASDAQ: AAPL)
3. SWOT Analysis
3.1. Microsoft
Revenue:
Cost of revenue:
(In millions)
(In millions)
Assets
Current assets:
Current liabilities:
Commitments and
contingencies
Stockholders’ equity:
(In millions)
Operations
Financing
Investing
Net change in cash and cash 2,220 (590) 4,283 1,153 915
equivalents
In 1975 Bill Gates and Paul G. Allen, two boyhood friends from Seattle, converted BASIC, a popular
mainframe computer programming language, for use on an early personal computer (PC), the Altair.
Shortly afterward, Gates and Allen founded Microsoft, deriving the name from the words
microcomputer and software. Allen quit his job as a programmer in Boston and Gates left Harvard
University, where he was a student, to focus on their new company, which was based in Albuquerque
because the city was home to electronics firm MITS, maker of the Altair 8800.
5. Chris Capossela - Chief Marketing Officer and Executive Vice President, Marketing and
Consumer Business
1. Current Ratio
2020 2019 2018 2017 2016
MSFT 2.52 2.53 2.90 2.48 2.35
AAPL 1.36 1.54 1.12 1.28 1.35
ORCL 3.03 2.49 3.96 3.08 3.74
Current ratio = (current assets / current liabilities)
This ratio is the most common liquidity ratio for measuring a company's ability to pay its short-
term financial obligations. It is also the least conservative of the liquidity ratios. In the technology
industry, it is important to have a high current ratio since the business normally needs to fund all of
its operations from current assets, such as the cash received from investors.
MSFT has a stable performance throughout the years, which is better than AAPL but not as
good as ORCL. This could be the result of ORCL’s main field, in which the company was not a
manufacturer and were focusing on Research & Development activity. In general, a good current ratio
is typically anywhere between 1.5 and 2. MSFT and ORCL could be paying short-term obligations well
within a year. In addition, the COVID-19 pandemic had a larger effect on ORCL’s ratio than MSFT’s.
2. Quick Ratio
2020 2019 2018 2017 2016
MSFT 2.33 2.35 2.74 2.37 2.22
AAPL 1.22 1.38 0.99 1.09 1.22
ORCL 2.83 2.31 3.78 2.95 3.57
B. Solvency Ratio
Opposite of liquidity ratios, Solvency ratios measure the long-term solvency of a company. These types
of ratios take into account long-term debt and any equity investments, both of which highly impact
technology companies.
1. Debt-to-Asset Ratio
2020 2019 2018 2017 2016
MSFT 0.24 0.27 0.31 0.37 0.28
AAPL 0.35 0.32 0.31 0.31 0.27
ORCL 0.62 0.52 0.44 0.43 0.39
2. Debt-to-Equity Ratio
2020 2019 2018 2017 2016
MSFT 0.62 0.77 0.97 1.23 0.76
AAPL 1.72 1.19 1.07 0.86 0.68
ORCL 5.93 2.58 1.31 1.08 0.93
Debt-to-equity = Total debt / Total equity
Technology companies make large amounts of investments in other technology companies
and take on investments and debt from other organizations to fund product development. So, this
ratio is extremely important for the analysis of technology companies.
MSFT and AAPL were financing their operations through debt versus wholly owned funds at a
low rate, which is very good. Especially, MSFT had a downward trend and its shareholder equity had
the ability to cover all outstanding debts in the event of a business downturn. From 2018, ORCL’s ratio
rocketed and reached a number of nearly ten times MSFT's ratio. This can be the result from acquiring
other companies or funds, normally through outside investments or by issuing debt.
3. Debt-to-EBITDA
2020 2019 2018 2017 2016
MSFT 1.08 1.42 1.75 2.37 1.66
AAPL 1.44 1.38 1.37 1.56 1.21
ORCL 4.21 3.25 3.52 3.64 2.84
C. Profitability Ratios
While many technology companies are not initially profitable, even large ones like Amazon, it is
necessary to look at their margins; other ratios which are a good indicator of future profitability even
if there are no current operating profits.
2. Return on Asset
2020 2019 2018 2017 2016
MSFT 15.40% 14.70% 6.60% 11.20% 11.30%
AAPL 17.60% 16.10% 16.00% 14.00% 14.90%
ORCL 9.70% 9.50% 2.60% 7.50% 8.20%
3. Return on Equity
2020 2019 2018 2017 2016
MSFT 39.50% 41.80% 20.10% 34.40% 27.30%
AAPL 75.20% 53.80% 48.70% 36.30% 35.60%
ORCL 67.20% 38.80% 7.00% 18.90% 19.10%
Return on equity = Net income / Average shareholder’ equity
This ratio is a measure of financial performance calculated by dividing net income by
shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE
is considered the return on net assets. It is considered a gauge of a corporation's profitability and how
efficient it is in generating profits.
The 3 companies saw an upward trend. AAPL had a big uptrend, doubling the ratio, due to the
steady growth in Revenue and Net income for the popular and trendy product lines during the whole
period. MSFT generated profit efficiently but not as rapidly as ORCL. Moreover, ORCL had a significant
decline and restructure in Shareholder’s Equity. From 2018 to 2020, ORCL’s indicators rose by about
ten times in only 2 years and finally surpassed MSFT.
D. Activity Ratios
An activity ratio is a type of financial metric that indicates how efficiently a company is leveraging the
assets on its balance sheet, to generate revenues and cash. In this study, we focus on Microsoft and
Apple because these two companies operate in this field more than Oracle, which has a very low level
of inventory.
1. Inventory Turnover
2020 2019 2018 2017 2016
MSFT 24.32 20.80 14.41 15.71 14.56
AAPL 41.75 39.40 41.39 29.05 61.6
ORCL 37.62 24.98 20.3 24.9 35.28
Net fixed assets turnover ratio = Net sales / Average fixed assets
This ratio is used to measure operating performance. It compares net sales to fixed assets and
measures a company's ability to generate net sales from its fixed-asset investments, namely property,
plant, and equipment. A higher fixed asset turnover ratio indicates that a company has effectively used
investments in fixed assets to generate sales.
The 3 companies all had assets available to cover operational expenses or business costs with
the best-performance ranking: AAPL, MSFT, ORCL. The explanation could be that ORCL is more in the
utilities sector, where the ideal rate of Net fixed asset turnover ratio of the benchmark is lower.
Meanwhile, AAPL has lots of manufacturing, retailing activities and MSFT is somewhere between.
Moreover, AAPL’s ratio saw an upward trend due to the growth of Net sales of retail stores chain,
which was the field that MSFT and ORCL did not focus on.
3. Receivables Turnover
2020 2019 2018 2017 2016
MSFT 4.47 4.26 4.17 4.54 4.67
AAPL 17.03 11.35 11.45 12.82 13.69
ORCL 7.04 7.69 7.55 7.12 6.88
Receivables turnover = Net credit sales / Average accounts receivable
This ratio is an accounting measure used to quantify a company's effectiveness in collecting
its accounts receivable, or the money owed by customers or clients. It measures how well a company
uses and manages the credit it extends to customers and how quickly that short-term debt is collected
or is paid.
MSFT was efficient at collecting on its payments due with a stable and smallest indicator
throughout the years. ORCL’s ratio ranged around 7, which is acceptable in this industry, but not so
good for a company with little inventory to generate credit sales. Noticeably, AAPL could not improve
their revenue collection process efficiency due to the commitment with partners and customers. Its
ratio ranged from 11 to 14 then reached a peak of over 17, giving them a “red flag”.
E. Valuation Ratios
Valuation metrics are most useful when thinking about the future, and therefore, the ratios financial
metrics we choose for valuation should be based on what the consensus expects in terms of earnings,
cash flow, etc. While views of earnings potential may differ, it’s good to know what the market expects
so you can understand what is built into the price.
So, this study focuses on the analysis of P/E and EV/EBITDA ratio rather than other ratios, as
a result of the difference in each firm’s main activity and revenue source.
1. Price-to-Sales ratio
2020 2019 2018 2017 2016
MSFT 10.79 8.16 6.87 5.51 4.41
AAPL 7 3.8 4.11 3.47 2.82
ORCL 4.34 4.38 4.84 4.94 4.5
Market-to-Book value ratio = Market price per share / Book value per share
This ratio is an indicator of market sentiment regarding the relationship between a company’s
required rate of return and its actual rate of return. A ratio >1 means that the market thinks that future
profitability will be greater than the required rate of return - assuming that book value reflects the fair
values of the asset.
3. Price-to-Earnings ratio
2020 2019 2018 2017 2016
MSFT 34.85 26.16 45.72 20.88 19.58
AAPL 33.45 17.9 18.32 16.46 13.29
ORCL 16.73 15.6 53.17 19.76 18.74
4. EV-to-EBITDA ratio
2020 2019 2018 2017 2016
MSFT 22.47 17.59 15.16 12.67 10.63
AAPL 25.59 13.37 14 11.93 9.38
ORCL 11.59 12.41 13.46 13.87 12.41
Debt and finance lease liabilities 82,541 0.04 3.32% = 3.83% x (1-13.4%)
(fair value)
Equity (fair value) = No. shares of common stock outstanding × Current share price
= 7,514,891,248 × $289.10
= $2,172,555,059,796.80
Debt and finance lease liabilities (fair value).
Required rate of return on equity is estimated by using CAPM.
Required rate of return on debt.
Required rate of return on debt is after tax.
Estimated (average) effective income tax rate
= (13.80% + 16.50% + 9.80% + 16.90% + 8.40% + 15.00%) ÷ 6
= 13.40%
WACC = 10.37%
Averages
RR 0.47
ROIC 19.53%
FCFF growth rate (g) 9.18%
where:
Interest expense, after tax = Interest expense × (1 – EITR)
EBIT(1 – EITR) = Net income + Interest expense, after tax
RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
g = RR × ROIC
● Single-stage model
g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (2,255,096 × 10.37% – 54,552) ÷ (2,255,096 + 54,552) = 7.76%
● Forecast
Year Value gt
1 g1 9.18%
2 g2 8.82%
3 g3 8.47%
4 g4 8.11%
5 and thereafter g5 7.76%
1.3. FCFF forecast
Terminal Value
Year Value value Calculation (10.37%)
1 FCFF0 54,552
1 FCFF1 59,557 = 54,552 × (1 + 9.18%) 53,963
2 FCFF2 64,811 = 59,557 × (1 + 8.82%) 53,207
3 FCFF3 70,299 = 64,811 × (1 + 8.47%) 52,292
4 FCFF4 76,003 = 70,299 × (1 + 8.11%) 51,224
5 FCFF5 81,900 = 76,003 × (1 + 7.76%) 50,014
Terminal = 81,900 × (1 + 7.76%) ÷
5 value 3,385,639 (10.37% – 7.76%) 2,067,514
Intrinsic value of capital 2,328,215
Less: Debt and finance lease
liabilities (fair value) 82,541
Intrinsic value 2,245,674
Stock price $298.83
● Single-stage Model
g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (2,172,555 × 10.63% – 50,614) ÷ (2,172,555 + 50,614) = 8.12%
● Forecast
Year Value gt
1 g1 16.22%
2 g2 14.20%
3 g3 12.17%
4 g4 10.14%
5 and thereafter g5 8.12%
B. Comparable Method
A comparable company analysis (CCA) is a process used to evaluate the value of a company using the
metrics of other businesses of similar size in the same industry. CCA operates under the assumption
that similar companies will have similar valuation multiples, such as EV/EBITDA. Analysts compile a
list of available statistics for the companies being reviewed and calculate the valuation multiples in
order to compare them. A company's valuation ratio determines whether it is overvalued or
undervalued. If the ratio is high, then it is overvalued. If it is low, then the company is undervalued.
1. Comparable companies selection
1.1. Choosing criteria
• Geography: Multinational companies
• Industry: Technology (Software / Hardware / Both)
• Financial size: Public companies with the same size of earnings and market capitalization
1.2. Peers decision
Ticker Company
AAPL Apple
ORCL Oracle
FB Facebook
AMZN Amazon
BABA Alibaba
GOOGL Alphabet
2. Metrics and Multiples: EV/Revenue, EV/EBITDA, P/E
3. Calculations
• Valuation multiples for each company
MSFT is a bit overvalued and the results do not contradict with the answer in Part 4.
In case Microsoft uses the debt by issuing bonds to finance this plan
Assuming using debt for 5% share repurchase, Rd = 5.609%, which is smaller than earning yields
(P/E=35.87%); therefore, EPS increases. However, WACC at 5% share repurchase is higher than current
WACC, which decreases in value of the firm.
3. Tax shield
In many ways, a buyback is similar to a dividend because the company is distributing money to
shareholders albeit in an alternative way. Traditionally, a major advantage that buybacks had over
dividends was that they were taxed at the lower capital-gains tax rate. Dividends, on the other hand,
are taxed as ordinary income tax rates when received.
Tax rates and their effects typically change annually; thus, investors consider the annual tax rate on
capital gains versus dividends as ordinary income when looking at the benefits.
Calculations
• Tax rate: 13.83%
• Credit spread: 0.75%
• Market risk premium: 5.5%
The higher share repurchase, the higher tax expense. If we issue debt to buy back shares, size of the
tax shield gets larger because interest expense is higher. The tax shield gap is largest (48.1) with 10%
share repurchases.
C. Recommendations
1. Buying methods
• Open market stock buyback
A company buys back its shares directly from the market. The transactions are executed via the
company’s brokers. The buyback of shares generally happens over a long period of time as a large
number of shares must be bought. At the same time, unlike other methods, stock buybacks via open
market do not impose any legal obligations on a company to complete the buyback program.
Thus, a company enjoys the flexibility to cancel the stock buyback program at any time. The primary
advantage of the open market stock buyback is its cost-effectiveness because a company buys back
its shares at the current market price and doesn’t need to pay a premium.
• Fixed-price tender offer
A company makes a tender offer to the shareholders to buy back the shares on a fixed date and at a
fixed price. The price of the tender offer almost always includes a premium relative to the current
share price. Then, those shareholders who are interested in selling their stocks submit their number
of shares for sale to the company. Generally, a fixed price tender offer can allow completing a stock
buyback within a short period of time.
• Dutch auction tender offer
In a Dutch auction, a company makes a tender offer to the shareholders to buy back shares and
provides a range of possible prices, with setting the minimum price of a range above the current
market price. Then, the shareholders make their bids by specifying the number of shares and the
minimum price at which they are willing to sell their shares. A company reviews the bids received from
the shareholders and determines the suitable price within a previously specified price range to
complete the buyback program.
The main advantage of the Dutch auction is that it allows a company to identify the buyback price
directly from shareholders. Additionally, using such a method, the stock buyback program can be
completed within a relatively short time frame.
• Direct negotiation
A company directly approaches one or several large shareholders to buy back the company’s shares
from them. In such a scenario, the purchase price of the shares includes a premium. Note that the key
benefit of this method is that a company can negotiate the buyback price directly with a shareholder.
Due to this reason, this method can be highly cost-effective under certain conditions. However, direct
negotiations with shareholders can also be time-consuming.
2. Consultations
We suggest MSFT to buyback shares. As the stock price of MSFT is considered to be quite
overvalued, a share buyback could be a signal that MSFT is undervalued. If the company’s
management believes that, we may decide to do it to increase the price of the remaining shares.
Moreover, dividend payments do not provide much flexibility to the company’s
management since they must be paid on certain dates, and all common shareholders must be paid.
On the other hand, stock buybacks generally provide a high degree of flexibility since they do not
specify the amounts that must be paid or dates when the transactions must occur.
As we can see from the data, using excess cash can give us the lowest WACC (5.593%). However, to
get that minimum WACC, we have to buy 24.42% of share buyback and it is not fit with our criteria
which is a buyback of 5-10%.
Therefore, 5% of share buyback using debt financing is the optimal decision because WACC
would be lowest, which can optimize the firm value. Earnings per share increase a bit along with
the percentage of buyback at 5%.
PART 7: M&A DECISION CONSIDERATION
A - Microsoft’s M&A strategy
We believe that applying Artificial Intelligence in Education is one of Microsoft’s M&A
Rationale and criteria.
1. In Artificial Intelligence sector
Microsoft's vision for AI (artificial intelligence) is about people. It's about amplifying human ingenuity
through intelligent technology that will reason with, understand and interact with people and,
together with people, help us solve some of society's most fundamental challenges.
Microsoft believes that enterprises can achieve far more with a comprehensive AI strategy
rather than incremental changes through isolated use cases. Our vision for the enterprise is to enable
every company to transform by bringing AI to every application, every business process and every
employee – and as a result, achieve more than it ever thought possible.
Microsoft offers a wide array of Conversational AI technologies to support the creation of
intelligent bots: from a simple QnA bot, to a robust virtual agent that can learn continually and
maintain a seamless, personalised conversation across channels. Regardless of their needs, Microsoft
is helping enterprises build conversational interfaces that interact with users in more natural ways,
enabling them to create outstanding customer experiences and help employees maximise their time.
In addition to providing tools for developers to build their own bots, Microsoft is investing in
the next generation of enterprise-ready virtual assistants, so organisations can start reaping the
benefits of a conversational AI experience immediately. Using industry-leading AI technology,
Microsoft virtual assistants are able to better serve the needs of both enterprise customers and
employees. For customers, they understand user intent and navigate complex multi-turn dialogues in
a natural, conversational style – all while maintaining consistency with the customer across channels
and over time. These assistants also support customer service agents, for example, by providing
context on the issue at hand and making recommendations to expedite optimal outcomes.
2. In Education sector
In recent years, some of the world’s fastest growing companies have deployed artificial intelligence to
solve specific business problems. In fact, according to new market research from Microsoft on how AI
will change leadership, these high-growth companies are more than twice as likely to be actively
implementing AI as lower-growth companies. What’s more, high-growth companies are further along
in their AI deployments, with about half planning to use more AI in the coming year to improve
decision making compared to about a third of lower growth companies. Still, less than two in 10 of
even high-growth companies are integrating AI across their operations, the research found.
On the road to developing a strategy, executives and other business leaders are often stalled
by questions about how and where to begin implementing AI across their companies; the cultural
changes that AI requires companies to make; and how to build and use AI in ways that are responsible,
protect privacy and security, and comply with government rules and regulations.
B. Suggestion of acquisition
Microsoft should have an eye on Coursera (NYSE: COUR)
1. About Coursera
Coursera Inc. (COUR) is an online education provider that offers students access to massive open
online courses, specializations, and even degrees. Founded in 2012 by Stanford computer science
professors Andrew Ng and Daphne Koller, Coursera doesn’t create educational content. Rather, the
company partners with universities and other organizations to provide them with an online platform
that students pay to access. Coursera is partnered with over 200 universities, businesses, and
nonprofits. They plan to expand in Latin America, and most recently, partnered with universities in
Mexico, Colombia, and Argentina to expand its reach.
2. Reason for suggestion
Strong revenue growth
One of Coursera's advantages is that it operates in the high-growth online education industry.
Forecasts predict the global e-learning market will expand from 2019's $101 billion to more than $370
billion by 2026.
The pandemic helped accelerate this market growth. Last year, Coursera saw a boost to its
revenue and registered users (whom it calls learners) as more people and institutions turned to online
learning as a solution to pandemic-related stay-at-home restrictions.
Coursera's 2020 revenue rose 59% year over year to reach $293.5 million, nearly double
2019's 30% year-over-year growth. Last year's outsize results continued into the first quarter of 2021.
Coursera generates revenue from three sources: individual consumers, enterprise customers, and its
degree program. Consumers and enterprise clients pay a monthly subscription fee for access to the
company's learning platform and its slew of courses, although the former can make one-time
purchases for individual classes. The degree segment involves the company collecting fees from
educational institutions using Coursera's platform to offer online learning.
Equally strong user growth
Coursera's revenue growth was fueled by a meteoric rise in learners. The company had 81.5 million
registered learners at the end of the first quarter, a 56% year-over-year increase from last year's 52.4
million.
The pandemic's impact to Coursera's user growth is apparent when comparing last year to
pre-pandemic years.
Making money by attracting paying users relatively cheaply
Coursera is known for its free courses: Of the company’s roughly 77 million users, just 3.6 million have
paid for a course or other offering. But Coursera’s business model allows the company to spend less
than competitors to attract those paying users, analysts say.
In 2020, about 50% of Coursera’s degree students were previously registered on the site and
more than 30% of the company’s enterprise leads came from the consumer platform, according to
the company.
The company also has the potential to increasingly benefit from network effects — or the idea
that each additional user makes the platform more attractive to other users — as it grows. Each new
client creates an opportunity to expand the company’s content library, increasing the appeal of the
platform for other clients.
REFERENCES
Microsoft (2019), Annual Report 2018
https://www.microsoft.com/investor/reports/ar18/index.html