Will Microsoft (MSFT) Stock be Affected by Ad-Display Business Exit?

NEW YORK (TheStreet) -- Microsoft Corp. (MSFT) announced on Monday that AOL Inc. (AOL) will manage and sell the tech company's display, mobile and video advertising inventory in nine key global markets and across a variety of platforms.

As part of the extended global partnership between the two companies AOL, recently purchased by Verizon (VZ) for $4.4 billion, will switch to a Bing-powered search solution beginning in January of next year. Bing is Microsoft's search engine.

"This deal is further evidence of the quality of Bing results and the performance of the Bing ads market place," Microsoft Corporate VP Rik van der Kooi said in a statement. "We will continue our focus on delivering world class consumer services and content and look forward to partnering with AOL to market them."

Shares of Microsoft are up by 0.72% to $44.69 in pre-market trading on Tuesday morning.

Separately, TheStreet Ratings team rates MICROSOFT CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 6.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.35, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 2.65 is very high and demonstrates very strong liquidity.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for MICROSOFT CORP is currently very high, coming in at 74.02%. Regardless of MSFT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MSFT's net profit margin of 22.94% compares favorably to the industry average.
  • You can view the full analysis from the report here: MSFT Ratings Report

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