Speculation is rife that Microsoft Corp MSFT is likely to acquire GitHub, according to a Bloomberg report citing “people familiar with the matter”. Notably, GitHub is supposedly the world’s largest open-source code repository.
GitHub was last valued at $2 billion in 2015. Both Microsoft and GitHub have refused to comment on the rumored acquisition deal. Consequently, the terms of the deal are unknown.
GitHub offers an open-source platform for coding enthusiasts and software developers. The platform brings developers together, to work on projects without compromising with each other’s code. Founded in 2008, the “social coding” platform boasts of 27 million developers and has hosted around 80 million repositories, as of March 2018.
The San Francisco–based GitHub has an impressive list of customer base which totaled more than 1.8 million organizations and businesses, as of March 2018. Companies like Airbnb, SAP, IBM, Google, PayPal, Walmart, Spotify, to mention a few, have leveraged GitHubs’s platform.
Microsoft’s Shift to Embracing Open Source Platforms
Slowly but steadily, Microsoft is embracing the concept of open source (free software where code is written by software developers from all around the world) after being averse to it initially. The company has come a long way in its stance on the open-source database subject.
Ever since Satya Nadella took over as the CEO of Microsoft in 2014, the company has been coming to terms with the concept in an impressive way. Around 2016, the company started to support the Linux operating system, an open source operating system on its cloud computing platform Azure.
Furthermore, as per an infographic report prepared by GitHub, an online community for programmers, Microsoft has the largest number of contributors to open source projects.
Microsoft leads with 15K contributors, followed by Facebook with 8.8K contributors and NPM with 7.6K contributors.
The GitHub survey makes it clear that Microsoft continues to actively pursue the open source route to keep itself relevant in the present context.
We note that acquisition of GitHub will prove to be a significant achievement for Microsoft. It will improve the company’s competitive position against cloud computing players like Amazon.com, Inc. AMZN and others.
What the Investors Need to Know?
Shares of Microsoft have returned 42.1% in the past year, outperforming the industry’s rally of 31.7%. This outperformance can be primarily attributed to company’s rapidly expanding efforts in AI and IoT based developments. Undisturbed focus on Azure remains a key catalyst.
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As per a report by Gartner in collaboration with MariaDB, more than 70% of newly developed in-house applications will be built on an open-source database management system ("OSDBMS"). Further, “50% of existing commercial relational database management system ("RDBMS") will have been converted or will be in process of converting” to OSDBMS.
We believe Microsoft with its increasingly receptive approach to open source platforms, looks well poised to capitalize on growth opportunities the open source database market presents.
To Conclude
We remain inquisitive on how GitHub takes shape under Microsoft’s umbrella. Whether GitHub will continue its operations independently, like that of LinkedIn or get merged to create a new Azure code repository service, only time can tell.
The acquisition is likely to boost collaborative coding and hence, is expected to bode well for innovations in software development.
Zacks Rank & Key Picks
Microsoft carries a Zacks Rank #3 (Hold).
A couple of better-ranked stocks in the broader technology sector are Mellanox Technologies, Ltd. MLNX and Micron Technology Inc. MU, both currently flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected long-term earnings growth rate for Mellanox and Micron are 15% and 10%, respectively.
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