Can Microsoft’s Stock Grow Post Coronavirus Scare?

by Trefis Team
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Microsoft (NASDAQ:MSFT) stock declined by about 8% between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500), and the stock is down almost 13% since 31st January after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then).

Looking back at the 2008 financial crisis, we see Microsoft’s stock declined from levels of just over $22 in October 2007 (the pre-crisis peak) to levels of almost $12 in March 2009 (as the markets bottomed out) – implying a decline of 44% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by as much as 51%.

Will Microsoft’s stock recover similarly once the coronavirus outbreak is reined in? We compare the performance of Microsoft vs. the S&P 500 in our interactive dashboard analysis, “2007-08 vs. 2020 Crisis Comparison: How Did Microsoft Stock Fare Compared with the S&P 500?

Notably, Microsoft recovered strongly post the 2008 crisis to levels of almost $24 in early 2010 – rising 92% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. While the stock has (so far) dropped about half of what it did in the 2008 crisis, it is possible it will fully recover to pre-coronavirus crisis levels, implying a 30% rebound as the crisis winds down.

On Monday, 9th March, the stock market entered into a phase of extreme volatility, with two significant sell-offs on Monday and Thursday being separated by days of partial recoveries. Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

MSFT stock has suffered as countries around the globe are on lockdown. As industries have halted production and services, the demand for software and web services have also taken a hit with consumers focusing solely on essentials and not discretionary products. We believe Microsoft’s fiscal Q3 and Q4 results will confirm this reality with a drop in revenues across many of its segments. That said, the company is also well poised to benefit from the growing number of people globally who are working from home thanks to its portfolio of software as well as services aimed at remote collaboration.

Microsoft’s stock has the potential to recoup its losses over the coming months, but the actual gain and its timing hinge on the broader containment of the coronavirus spread.  Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread. If signs of coronavirus containment aren’t clear by the last week of April when Q3 earnings are expected, it’s likely Microsoft’s stock (along with the broader market) is going to drop further.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of the coronavirus outbreak’s impact on a diverse set of Microsoft’s multinational peers, including Amazon and Salesforce.com. The complete set of coronavirus impact and timing analyses is available here.

 

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