Financial Analyst Micheal Markowski is now favoring Microsoft as the first digital trillion dollar company thanks to its recent LinkedIn purchase. The $26 billion acquisition caused concern among investors, but Markowski thinks it could be the company's saving grace.
At $494.6 billion, the Redmond giant's market cap is behind Alphabet ($548 billion) and Apple ($618.3 billion), several factors may change that.
Chief among them is Microsoft's LinkedIn acquisition, which expands its price/earnings multiple. Markowski also believes the purchase will lead to leadership status in the social investing community (SIC).
Though still in its infancy, Markowski thinks SIC will lead to widespread equity crowdfunding, “the fourth major digital application or innovation.” It could be a huge cash cow for Microsoft.
Free Cash Flow Yield
Another factor is Microsoft's free cash flow yield, which is the highest in the market. The term compares free cash flow and market cap and represents income created by an investment. Markowski explains further:
“Microsoft's shares are a key core long-term hold for every portfolio. The LinkedIn acquisition will result in an increase in its PE multiple. Since Microsoft has the highest free cash flow yield of the 10 companies in my digital universe, it's the most undervalued. Microsoft clearly has the potential to outperform the market. Most importantly, the downside for its share price is limited since the current dividend yield is 2.5%.”
In addition, Microsoft has access to a database of 433 million users across the world. This professional data includes some of the richest and most powerful people in the world.
Markowski projects that by 2020, the LinkedIn member base will grow to 700 million. By 2025, he predicts SIC will be as big as the social media industry, and Microsoft will be a major player in that.
We can't say how accurate Markowski's predictions are. Naturally, there is a lot of estimation involved, and it's hard to predict exactly how things will go. However, the statement can only be good news for Microsoft, and may help allay some of the criticism over the LinkedIn purchase.