Satya Nadella’s fondness for cricket is well known. He has shared his views on how playing cricket in his school and college years groomed him to be a good team player and a manager. He considers a bat signed by Sachin Tendulkar as his favourite personal procession. However, his cricketing indulgences don’t just end there!
In scooping Sam Altman and his close associate and co-founder of OpenAI Greg Brockman within days (that too over an otherwise inactive weekend for businesses), he has displayed the class with which Sachin Tendulkar will send a loose delivery to the stands. However, for those who have followed Satya Nadella for nearly the last 10 years since he took over as the CEO of Microsoft in early 2014, this would come as no surprise.
Nadella’s history as CEO is loaded with instances of striking when the iron is hot. Consider this for example – for years since its listing in 2011 till early 2016, LinkedIn was the darling amongst social media stocks, outpacing Facebook and others in terms of annualised returns since its IPO in 2011. However, just a few hours of trading on a single day in February 2016 undid most of those gains when the stock crashed by 40 per cent following a weak revenue outlook from the company. As the stock languished for weeks, Satya Nadella was quick to scoop the company sensing the opportunity the crash had provided, and the value and potential that LinkedIn held. And what an acquisition it was! Compared to revenue of around $3 billion in 2015 (prior to Microsoft acquisition), LinkedIn revenues were around $15 billion in FY23, more than justifying the $26 billion that Microsoft paid to acquire it.
There are many more examples, such as the pivot that Microsoft made to cloud business at the right time, which now accounts for a significant chunk of its $2.75 trillion in market cap; its acquisition of GitHub, or the acquisition of gaming and interactive entertainment leader Activision Blizzard and here too grabbing the opportunity when the company was embroiled in controversies and the shares had tanked.
‘Balm’ for Ballmer pain
Prior to Satya Nadella taking control of reins, Microsoft investors had endured a torrid time. The stock languished well below highs for around 15 years after peaking in 1999/2000. Contrary to Satya Nadella, his predecessor Steve Ballmer had a track record of using Microsoft’s surplus cash for reckless acquisitions that appeared to more mollify his ego rather than benefit Microsoft in anyway.
For instance, under Steve Ballmer Microsoft acquired internet advertising platform company aQuantive for $6 billion, which turned out to be a dud and had to be written off. So was the case with its poorly timed acquisition of Nokia in 2013 at a time when Apple/iPhones and Asian manufacturers of Android phones had taken full control of the market, leaving little scope for legacy players like Nokia. With Nokia’s acquisition too, Microsoft took a huge $7.6-billion write down. Ballmer also threw around a huge $8.6 billion to acquire Skype, which, too, appears to have failed. The one good thing that happened under Steve Ballmer’s tenure — his attempt to acquire Yahoo for $44 billion in 2008 failed.
For Nadella, every single large acquisitions have been winners for Microsoft. This underscores the fact that excess cash without sound business judgment is a bane. Ballmer rued Microsoft’s lack of leadership in the internet and mobile arena, underpinning his poor judgment while trying to catch up.
On the contrary, Satya Nadella appears to be ahead of the curve in identifying right opportunities at the right time. The stunning 27 per cent CAGR returns in Microsoft in the last 10 years (versus 10 per cent CAGR returns in S&P 500) is reflective of the change he has brought about to one of the most important companies in the world.
By bringing Sam Altman and team on board into the company, he might have given a huge thrust to ensuring Microsoft maintains a leadership position in the AI Gold Rush.
Published on November 20, 2023
