MSFT Stock Up on Job Cut News, More Gains Ahead

Microsoft Corp. (Nasdaq: MSFT) Chief Executive Officer Satya Nadella announced today that the company will be cutting 18,000 jobs, a move that will eliminate 14% of the company's workforce. Following the news, Microsoft stock was up 3% in morning trading.

In an email to employees, Nadella noted that the first 13,000 jobs will be cut within the next six months. He also said that 12,500 of the cuts will come from its Nokia division, which MSFT officially acquired in April. More details about the cuts will be announced when Microsoft makes its public earnings call Tuesday.

"It's important to note that while we are eliminating roles in some areas, we are adding roles in certain other strategic areas," Nadella said.

In the email, it's clear that the layoffs are meant to streamline Microsoft's business. Nadella also contends that the job cuts will help Microsoft modernize its engineering processes.

"First, we will simplify the way we work to drive greater accountability, become more agile, and move faster," Nadella said.

"[W]e plan to have fewer layers of management, both top down and sideways, to accelerate the flow of information and decision making. This includes flattening organizations and increasing the span of control of people managers. In addition, our business processes and support models will be more lean and efficient with greater trust between teams. The overall result of these changes will be more productive, impactful teams across Microsoft."

Nadella previously hinted that Microsoft would be making organizational changes last week in an employee memo.

Since then, Microsoft stock has climbed 9% in just five trading sessions. Yesterday, MSFT stock closed at $44.08, its highest value since 2000. In 2014, Microsoft stock is up more than 21%. It's gained more than 27% in the last 12 months.

Today's job cut announcement sent shares to 52-week highs, but now the big question is if MSFT stock can maintain its momentum.

Here's why things look good for the tech giant...

Where Microsoft Stock Is Headed

According to Barron's, MSFT stock has seen an influx of September $44 calls from options traders in the last 10 days, meaning investors are bullish on Microsoft stock long-term.

Typically, calls that expire close to an important date are purchased by options traders looking to capitalize on a specific event. The fact that many investors are buying September calls, even when Microsoft reports earnings Tuesday, indicates that investors are bullish on MSFT well past its earnings date.

Currently, there are approximately 55,000 outstanding contracts on MSFT stock.

"If the stock were to hit $50, for example, the calls now trading around 64 cents would be worth $6," Barron's Steven M. Sears said yesterday. "Most of the calls traded at the asking price, which indicates they were probably bought by institutional investors."

Insider or institutional buying is another bullish sign for a stock, because it indicates optimism among the company's inner circle.

"There's really only one good reason for insiders to be buying shares of their company - they believe better times are ahead and that the stock is destined to rally," Money Morning's Defense and Tech Specialist Michael A. Robinson said. "In fact, spotting insider buying is a good way to consistently beat the market. Basically, this is about as bullish an indicator of a company's future as you can find."

Robinson said after the last MSFT earnings report in April that the company - under Nadella's leadership - was making progress in multiple areas now.

"I'm feeling a lot more optimistic about [Nadella] as a leader... he's come out like gangbusters, and has great reviews from analysts across Wall Street," Robinson said. "Microsoft needs to continue driving down costs and keeping its margins up."

And slimming its workforce by 14% today was a major step toward driving down costs.

"At this point, it's all about execution," said Robinson. "They need to do everything well."

Today's announcement created a nice bump for MSFT shares, and if Tuesday's earnings report show strong forward guidance figures, another bump is likely. But that may just be the beginning in a new era for MSFT stock.

"[T]he interest in September expiration suggests investors are taking a longer view of Microsoft, and positioning for the new CEO to continue to announce investor-friendly news..." Sears said.

Share this story on Twitter @moneymorning and @KyleAndersonMM using #Microsoft.

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Why DC Just Moved 'Batman v. Superman' Away From 'Captain America 3'

Batman v. Superman is no longer opening the same weekend as Captain America 3, Photo credit: Time Warner, Disney

Rejoice, superhero fans! Time Warner (NYSE: TWX  ) just confirmed you'll be able to see Batman v. Superman: Dawn of Justice over a month earlier than originally planned. Specifically, Warner Bros. moved Batman v. Superman's scheduled release date from May 6, 2016, to March 25, 2016.

But there's another reason the decision is important: This means Batman v. Superman is no longer slated to be released the same weekend as Disney (NYSE: DIS  ) Marvel's Captain America 3. And that's a great thing for both Time Warner and Disney, as their respective films surely would have experienced at least some level of sales cannibalization by forcing movie-goers to choose between the two blockbusters in their crucial first weeks.

Not that it should come as a huge surprise. Back in May, I wrote:

I don't think Disney's taking the bigger risk here here. Someone's going to flinch, and nobody really believes they're both going to come out the same weekend. In this case, I think Time Warner would be the one who should flinch and move their date -- if even a couple weeks earlier just to separate the two.

Here's why DC backed down
But why, exactly, did Time Warner "flinch" in this case? First and foremost, it's a matter of brand momentum.

Remember, every film since Marvel's The Avengers has ridden a wave of momentum in Disney's Marvel cinematic universe to exceptional results, recently including the stellar April performance of Captain America: The Winter Soldier earlier this year. Worse yet for DC, Marvel is planning to release Avengers: Age of Ultron on May 1, 2015, and there's little doubt the multi-character tentpole will only propel future Marvel films like Captain America 3 all that much higher.

Marvel's Avengers: Age of Ultron will create significant momentum for Captain America 3. Credit: Marvel.com

By contrast, and though comic book fans are genuinely excited for the prospects of Batman v. Superman to eventually lead to a Justice League film, the broader movie-going public simply doesn't share the same level of enthusiasm yet for Time Warner's DC cinematic universe.

There's also the matter of principle. To Disney's credit, it did announce Cap 3's May 6 launch first, only to have Time Warner and DC come marching in later to issue Batman v. Superman's shockingly direct challenge. At the same time, it was hard to blame Time Warner and DC for trying to grab the same weekend in May, as the date represents the start of the lucrative summer box office season.

In addition, some historical calendar envy was likely present -- that weekend had already been occupied by Marvel blockbusters in each of the previous three years, including Thor on May 6, 2011, Marvel's The Avengers on May 4, 2012, and Iron Man 3 on May 3, 2013.

My (comically) Foolish takeaway
So where does that leave Time Warner investors now? In short, I think the new March date is great choice for DC.

After all, during the same weekend in 2012, The Hunger Games set a new spring record by tallying an incredible $152.5 million in its own weekend debut. Then this year, Marvel mixed things up with the April 4 release of Captain America: The Winter Soldier, which became the highest-grossing April film of all time following its own record $95 million weekend launch. If one thing seems sure, it's that the The Hunger Games and Cap 2 proved the right cinematic property can bring movie-goers out no matter what its timing.

In the end, I doubt Time Warner will ever completely elaborate on its reasons for moving Batman v. Superman -- especially if those reasons include admitting Marvel's brand is simply more powerful in the cinema right now. If one thing seems sure, however, it's that Batman v. Superman will be much better off with its new date.

Your cable company is scared, but you can get rich
This battle doesn't end with the big screen. You know cable's going away. Do you know how to profit when that happens? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple.