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WSJ Your Money Briefing
Microsoft Proves Big Tech Can Weather the Storms
00:06:41
Unlike many of its big-tech peers, Microsoft has remained relatively unscathed in the face of this quarter's market selloff. Heard on the Street columnist Dan Gallagher explains how Microsoft is evidence that big tech is here to stay.
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- [00:00]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
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Retail Industry Representative
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [00:15]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [00:20]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [00:26]
Small Business Owner
Tell Congress Stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.
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J.R. Whalen
With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. The big names in the tech sector have taken a beating on Wall street over the past two months, but Microsoft has been able to stay pretty much above the fray. We'll explain why in a moment. First, these money and market stories. You should know that burning feeling in your pocket might be some extra cash. Personal income, which is essentially Americans pre tax earnings from wages and salaries and investments rose 0.5% in October. That's the best gain since January. And Americans weren't afraid to open their wallets either. Household spending increased A seasonally adjusted 0.6% in October from the prior month. That's good enough to be the largest monthly increase since March. And more good news for consumers is the fact that inflation seems to be cooling off. That could give the Federal Reserve reason to back off the number of planned interest rate increases next year, and that would benefit the housing market. Meanwhile, the Federal Reserve says that Millennials aren't all that different from their parents with regard to tastes and consumption, and has a lot to do with last decade's recession. The Fed says that Millennials tastes seem to deviate from their parents, but that was in the years following the economic downturn. Since then, for example, their interest in buying cars, which had waned, is now not much different from their parents. And the same is true for food and housing. The the Fed also says the Millennials have lower real incomes than members of earlier generations at similar ages. They also appear to have accumulated fewer assets. And the Wall Street Journal Real Estate Bureau reports that Boston Red Sox owner John Henry is asking $25 million for his Florida estate. It's about five miles from Boca Raton, with the main home on the property measuring nearly 28,000 square feet. It's got seven bedrooms, 19 bathrooms along with 30 foot high ceilings. You also get a wood burning P oven and a wine cellar that can hold a thousand bottles. There's even a guest wing with separate entrance and parking spaces for your friends and relatives who want to come and Go as they please. October's stock market sell off was driven in large part by investors shedding their positions in big tech companies. Apple and Google, Facebook and Amazon lost about half a trillion dollars in value. But one tech company that didn't take it on the chin as much. So how has Microsoft stayed somewhat unscathed? We've got Hurt on the street columnist Dan Gallagher on the line with us with some answers. Dan, how's it going?
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Dan Gallagher
Good. How are you doing?
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J.R. Whalen
Good. Good. So among the tech sector, heavy hitters, Microsoft is the good son. It's more or less kept itself out of trouble.
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Dan Gallagher
Yeah. Which is kind of ironic because, you know, they've had plenty of struggles through their history. Where they benefit is they have a long history. So a lot of what some of the current, especially like Google and Facebook are dealing with now, a lot of the political pressure. Microsoft has kind of already been there, done that. They're not really in anybody's sites anymore. And when you combine that with the fact that their business, they made several significant improvements, their business over the last few years, so their stock has kind of made a steady rise. And then these others have fallen by quite a bit. And that's allowed them to essentially, essentially catch up to Apple. They're pretty much neck and neck right now.
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J.R. Whalen
Yeah, that's a really good point. Microsoft has done a lot of proactivity to help itself. It's not just them fiddling while Rome burns. They've done a lot to bolster their business and win Wall Street's good graces.
- [04:04]
Dan Gallagher
They have. I mean, they've done this pivot to a cloud business. What they realized when they got a new CEO about four years ago, the shift was realizing they missed the mobile revolution. They totally missed smartphones, and they spent several years kind of stumbling around trying to make attempts at that. And under the new management, they decided our future is really making sure people can use our software and services no matter what device they're using, even if they're not using a Windows PC. Microsoft is figuring out ways to make money from people like that, which they hadn't really done before. So that's helped them a great deal. And now this cloud business is about a third of their overall revenue. And that's coming from corporations needing cloud computing services, all kinds of things that are funneling into that. And that's been a great growth story for them.
- [04:56]
J.R. Whalen
You know, you're right in your column that Microsoft is an example of a company that when it reaches a certain size or scale, it tends to have staying power what did you mean by that?
- [05:05]
Dan Gallagher
All these companies that we've mentioned, you know, Google, Apple, Amazon, Facebook, they make these services that literally billions of people interact with every day, every, maybe even every hour. I mean, you know, people are constantly on their phones. You're using, you know, people buy things constantly on Amazon. You're using Google for searching for email, for all kinds of things. Facebook has like 20% of the planet's population checking in once a day, at least. So when you have that kind of scale, you know, that kind of wide use of your services and the cash, the cash flow they produce, the earnings, it just creates companies that are very sizable that really can pretty much weather a lot of storms, even though right now it seems really a bad time for them. They're under a lot of pressure and attack. When you reach a certain scale, people are not going to stop using these services overnight.
- [06:03]
J.R. Whalen
You make that point in your column that Apple, Amazon, Facebook, and Alphabet are generating $320 million per day. I mean, per day. When you say the big tech is here to stay, that's not really a joke.
- [06:14]
Dan Gallagher
And that's per day in free cash flow combined for those four. And it's a huge number. And you go, you know, again, it's like, unless you had a scenario where you thought, okay, all these billions of people are going to stop using these services in some sort of short time period, that really hasn't happened. I mean, look at, and again, back to the Microsoft example. Look at how, you know, for years Windows was, you know, people joked out Windows being full of bugs, all these problems. And, and today, most computing still happens over Windows. Most offices are running on Windows. It's, it just hasn't, you know, you can make, you know, even with all the flaws that were there, that it was still, it had such a scale, it's still widely used. And that, that just doesn't change very quickly.
- [07:01]
J.R. Whalen
All right, that's Wall Street Journal heard on the street columnist Dan Gallagher from our San Francisco bureau. Hey, Dan, thanks for stopping by with us.
- [07:08]
Dan Gallagher
My pleasure.
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J.R. Whalen
And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.
- [07:13]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [07:18]
Retail Industry Representative
Infliction is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [07:28]
Small Business Owner
See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [07:33]
Retail Industry Representative
they need while increasing megastore profits. They deserve it, don't they?
- [07:39]
Small Business Owner
Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.