Antipodes Founder and Chief Investment Officer Jacob Mitchell has warned investors about diving into ‘high-flying’ SaaS tech stocks, trading on nosebleed valuations.
Mr Mitchell says the FY2020 Q1 results released by Microsoft yesterday demonstrate how even the world’s biggest companies can offer attractive value for investors.
“Finding attractive value in one of the world’s biggest companies might seem unusual for a value investor and to many Microsoft may seem expensive. However, Microsoft’s quarterly earnings reinforce our view that the tech giant is currently experiencing one of its most rapid periods of growth in its 44-year history, with a long runway ahead,” said Mr Mitchell.
“The company’s FY2020 Q1 results reinforce this view, showing Microsoft’s major growth drivers – the cloud division and Office 365 – continue to accelerate with Azure growing at 63% and Office 365 Commercial at 28% constant currency.
“Conversely, we also believe in a similar manner to 2000, the general ‘bubble’ in duration or growth valuations means there is a great opportunity to short some of the weaker so called ‘best of breed’ SAAS companies that fall in Microsoft’s crosshairs.
“Microsoft is working to capture as much of the customer wallet with its Office 365 and cloud offerings. Office 365 has become a powerful suite that bundles Microsoft’s SaaS software into a single product – powering workflows across desktops, laptops and mobile phones.
“Microsoft is working to capture as much of the customer wallet with its Office 365 and cloud offerings. Office 365 has become a powerful suite that bundles Microsoft’s SaaS software into a single product – powering workflows across desktops, laptops and mobile phones.
“Microsoft can also use bundles to keep pricing very attractive compared to stand-alone SaaS products, which must rely on claiming to offer ‘best of breed’ services.
“In a market where many cloud single-product SaaS names are now being aggressively sold off as more questions are asked about their terminal profitability, the fact Microsoft’s bottom line margins are outperforming even top-line growth is reassuring the market and has ensured material recent outperformance vs higher growth but loss-making peers”
“The Antipodes pragmatic vale approach seeks quality and growth in less obvious parts of the market. This means we’re happy to invest in a company like Siemens, perceived to be cyclical but with businesses well positioned for secular growth opportunities in social infrastructure, alongside something far more ‘obvious’, but nonetheless potentially overlooked in terms of its durability in Microsoft.”
