Microsoft closes out 2018 as the top public company

Key Points
  • This year Microsoft was one of the top gainers in the Dow Jones Industrial Average.
  • Microsoft eclipsed Apple as the world's most valuable public company by market cap on Nov. 30.
Microsoft CEO Satya Nadella speaks at an Economic Club of New York event in New York on Feb. 7, 2018.
Mark Kauzlarich | Bloomberg | Getty Images

Microsoft has not had a tremendous quarter. But it has still succeeded in regaining a coveted title: most valuable public U.S. company by market cap.

And even though Microsoft's product announcements still might not rivet the public like Apple's keynotes, the company has moved forward in measurable ways in 2018, following years of transition under CEO Satya Nadella.

Nadella's Microsoft, which has prioritized things like the cloud, open-source software and cross-platform services and has de-emphasized Windows, was arguably synthesized in a remark he offered in an interview with CNET. "You join here not to be cool, but to make others cool," he said.

It's now been one month since Microsoft captured the most-valuable-public-company title from Apple. This is the first time Microsoft is ending the year as the world's highest valued public company since 2002.

The fourth quarter hasn't been the best quarter in history for the company. (That was the first quarter of 1987, when the stock price doubled.) In fact, this was one of its poorer quarters through the years. The stock was caught up in a wider market selloff, and it declined by 11 percent this quarter.

And yet, Microsoft was discounted less than other top companies. Amazon fell 25 percent in the fourth quarter, and Apple went down 30 percent.

For all of 2018, shares of Microsoft rose almost 19 percent. It stands out as one of the top five components of the Dow Jones Industrial Average for the year. At the end of 2018, Microsoft's market cap stood at $779.7 billion as the stock closed at $101.57 per share.

Microsoft has had a strong year. It continued its streak of exceeding analysts' estimates for earnings and revenue with each of its earnings reports.

Its June GitHub acquisition, the third most expensive in the company's 43-year history, behind LinkedIn and Skype, has been well received.

"The rationale for acquiring the asset is appealing, in our opinion," Piper Jaffray analysts led by Alex Zukin wrote in a September note. "For Microsoft, developer mind share and wallet share is paramount. Microsoft believes that developers will have an outsized voice at the table in the age of digital transformation and that this was the most important reason for the acquisition. Secondarily, the company also believes that they can drive increased GitHub monetization."

Meanwhile, gaming became a $10 billion business for Microsoft for the first time. The LinkedIn business doubled and is now generating more than $5 billion in annual revenue. Surface hardware revenue is approaching the $5 billion mark. And the Azure public cloud continued to gain share, picking up new business from the likes of Gap and Walmart. In the third quarter, Microsoft gained more share than Amazon, IBM, Google or Alibaba in the cloud infrastructure services market, according to Synergy Research Group.

"After another year of strong relative performance ..., we believe Microsoft remains well positioned to continue to deliver steady top line and bottom line growth over the next 3-5 years given the breadth of its cloud portfolio, its growing annuity revenue base, and its strong balance sheet," Evercore ISI analysts led by Kirk Materne wrote in a note earlier this month.

Some analysts now expect Microsoft to be worth more than $1 trillion before the end of 2019.

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